B-169420, OCT. 22, 1970

B-169420, OCT. 22, 1970

CLAIM OF PAYMENT BOND SURETY--GOVERNMENT PRIORITY CLARIFICATION OF ORDER OF PRIORITY AMONG CLAIMANT'S WHERE THERE HAS BEEN A TAKE-OVER AGREEMENT BETWEEN A SURETY TO PERFORM A CONTRACT AND THE GOVERNMENT. SURETY DOES NOT HAVE AN ABSOLUTE PRIORITY TO CONTRACT BALANCE WHERE A TAKE-OVER AGREEMENT HAS BEEN ENTERED INTO WITH THE GOVERNMENT, EVEN WHEN THE CONTRACTOR HAS EXECUTED AN ASSIGNMENT IN FAVOR OF THE SURETY. WHILE THE PERFORMANCE BOND SURETY HAS PRIORITY TO THE EXTENT OF ITS EXPENSES INCURRED IN COMPLETING THE CONTRACT, THE GOVERNMENT HAS PRIORITY OVER THE PAYMENT BOND SURETY TO THE EXTENT OF DEBTS DUE THE U.S. IRRESPECTIVE OF THE SOURCE OF THE DEBT.

TO MARYLAND CASUALTY COMPANY:

REFERENCE IS MADE TO YOUR LETTER DATED SEPTEMBER 16, 1970, YOUR REFERENCE: 7480-67 CONT. 240-1579 U.S.A. (SWANTON VT.) GOVERNOR CORPORATION, RELATIVE TO OUR DECISION DATED SEPTEMBER 4, 1970, B 169420, TO THE SECRETARY OF THE INTERIOR CONCERNING THE CLAIM OF THE MARYLAND CASUALTY COMPANY, AS SURETY, TO FUNDS REMAINING TO BE DISBURSED UNDER CONTRACT NO. 14-16-005-3030.

YOU TAKE EXCEPTION TO CERTAIN STATEMENTS IN OUR DECISION AS BEING CONTRARY TO FACT. YOU REFER TO AND QUOTE FROM OUR DECISION AND STATE THAT THE BALANCE OF CONTRACT FUNDS INCLUDING EXTRAS ADMITTED ARE CONSIDERABLY LESS THAN THE AMOUNT OF THE SURETY'S EXPENDITURE. THIS WE DO NOT DENY, BUT IN OUR DECISION WE REFERRED TO "ALL AMOUNTS DUE OR LIKELY TO BECOME DUE UNDER THE CONTRACT." THE SUM OF AMOUNTS DUE THE CONTRACTOR PLUS THE AMOUNTS OF PENDING CLAIMS, IF ALLOWED, WOULD EXCEED THE STATED COMPLETION EXPENSES. WE STATED THAT UNDER THE SUPPOSED CIRCUMSTANCES THE MATTER "COULD" HAVE BEEN SETTLED EARLIER IN YOUR FAVOR NOT THAT IT "WOULD HAVE BEEN SETTLED." AT THIS POINT IT MAY BE NOTED THAT THE DECISION IS DIRECTED TO THE SECRETARY OF THE INTERIOR AND IS RESPONSIVE TO HIS REQUEST FOR ADVICE NOT ONLY AS TO DETERMINED CLAIMS FOR EXTRAS BUT ALSO PENDING APPEALED CLAIMS FOR ADDITIONAL COMPENSATION, IF ALLOWED.

THE STATEMENT THAT MR. WILLIAM C. REDMOND IS A REGIONAL COUNSEL OF OUR OFFICE IS INCORRECT, SINCE HE APPEARS TO BE EMPLOYED IN THE DEPARTMENT OF INTERIOR.

THE COMMENTS RELATIVE TO PAYMENT BOND PROVISIONS ENTITLING THE SURETY TO PAYMENT OF THE SUMS DUE THE DEFAULTING CONTRACTOR AND TO OUR COMMENT RELATIVE THERETO HAVE BEEN NOTED. IN YOUR BASIC LETTER OF MARCH 4, 1970, TO THE REGIONAL SOLICITOR OF THE DEPARTMENT OF INTERIOR YOU APPEAR TO ASSERT THE ABSOLUTE PRIORITY OF THE SURETY TO CONTRACT BALANCES IN THIS MATTER. OUR REFERENCE TO THE PROVISIONS OF THE TAKE OVER AGREEMENT IN CONJUNCTION WITH OUR STATEMENTS IS INTENDED TO SHOW THAT INSOFAR AS THE PAYMENT BOND SURETY IS CONCERNED, THE GOVERNMENT HAS A PRIOR CLAIM TO CONTRACT BALANCES FOR CONTRACTOR'S DEBTS DUE THE GOVERNMENT. AT THIS POINT WE MUST ADVISE THAT THE ASSIGNMENT EXECUTED BY THE CONTRACTOR IN FAVOR OF THE SURETY IN THE APPLICATION FOR BOND DOES NOT ENTITLE THE SURETY TO PRIORITY, AS AN ASSIGNEE. SUCH AN ASSIGNMENT, WHILE EFFECTIVE BETWEEN THE PARTIES, IS WITHIN THE BAN OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 41 U.S.C. 15, SINCE THE SURETY HERE IS NOT A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION.

IN SUM, OUR DECISION HOLDS THAT CONTRACT BALANCES DUE THE CONTRACTOR ARE TO BE DISTRIBUTED IN THE FOLLOWING ORDER OF PRIORITY.

1. TO THE PERFORMANCE BOND SURETY TO THE EXTENT OF ITS EXPENSES INCURRED IN THE COMPLETION OF THE CONTRACT;

2. TO THE UNITED STATES TO THE EXTENT OF DEBTS DUE THE UNITED STATES, IRRESPECTIVE OF THE SOURCE OF THE DEBT;

3. TO THE PAYMENT BOND SURETY TO THE EXTENT OF PAYMENTS MADE TO LABORERS AND SUPPLIERS;

4. ANY AMOUNTS IN EXCESS OF THE ABOVE TO BE PAID TO THE CONTRACTOR.