B-224837-O.M., Feb 26, 1988

B-224837-O.M.: Feb 26, 1988

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We determine that the surety is entitled to the excess of withheld funds. Notice to the contractor and its president of the alleged violations was provided by the Department of Labor. The record indicates that the notice was received. No hearing was requested. The recommended debarments are warranted. There is a payment issue. An agreement was reached between Reliance and Labor. Which was approved by an Administrative Law Judge. 567.67 is to be paid to the wage claimants. Is to be disbursed "to and among the appropriate party or parties having a claim to such funds.". Reliance is entitled to the excess of withheld funds.

B-224837-O.M., Feb 26, 1988

DIGEST: A surety on a Davis-Bacon Act (40 U.8.C. Secs. 276a to 276a-5 (1982)) contract assumed and completed the contract. The surety seeks payment of the excess of funds withheld to cover underpayments to employees. surety who completes performance of a contract or pays funds needed for completion of a contract, becomes entitled to remaining contract proceeds in the hands of the government as the governments' subrogee. See Priority or Payment From Remaining Contract Proceeds, 64 Comp.Gen. 763, 765 (1985). By this memorandum, we determine that the surety is entitled to the excess of withheld funds.

H. T. Engineers and Contractors, Inc.:

This case involves alleged Davis-Bacon Act violations by H. T. Engineers and Contractors, Inc. (H. T. Engineers) (the original prime contractor), and Han Tung Liu (individually and as President of H. T. Engineers), during the performance of the United States Department of Agriculture contract No. 50-5721-3-21 for the installation of laboratory furniture and equipment at the Food Safety and Inspection Service, Alameda, California.

The Department of Labor by a letter dated December 4, 1987, recommends debarment of the original prime contractor and its president. Notice to the contractor and its president of the alleged violations was provided by the Department of Labor. It stated that the contractor failed to pay 25 employees the required prevailing wage rates for the classification of work performed and issued 16 of these employees payroll checks with the knowledge that such checks would be non-negotiable due to insufficient funds. It offered a hearing on both the payment and debarment issues. The record indicates that the notice was received, but no hearing was requested. The record indicates that H.T. Engineers has been liquidated and its president "departed for a new life in Las Vegas, Nevada." Therefore, the recommended debarments are warranted.

However, there is a payment issue. The surety on this contract, Reliance Insurance Company (Reliance), assumed and completed the contract. Reliance seeks payment of the excess of funds withheld to cover underpayments to employees. Reliance's attorneys requested a hearing on the payment issue. (Based on an agreement we reached with the Labor Department, by a letter dated January 29, 1987, we remanded the matter to Labor for a hearing.)

Prior to the hearing, an agreement was reached between Reliance and Labor, which was approved by an Administrative Law Judge. H.T. Engineers and Contractors, Inc./Reliance Insurance Co., Case No. 87-DHA 59, Office of Administrative Law Judges, United States Department of Labor (October 29, 1987) (Halpern, A.L.J.). This agreement provides that $42,567.67 is to be paid to the wage claimants, while the excess of withheld funds, $3,700, is to be disbursed "to and among the appropriate party or parties having a claim to such funds." While H.T. Engineers had the opportunity to dispute the payment issues, it failed to request the hearing offered to it.

Reliance, as the surety and successor prime contractor, stands in the place of H.T. Engineers. The "Takeover Agreement" (dated April 17, 1985) between Reliance and the United States Department of Agriculture specifically provides that, "For such completion of the contract, Owner the Department of Agriculture agrees to pay Surety Reliance all of the contract funds otherwise payable to H.T. Engineers, including those funds presently held by Owner" A surety who completes performance of a contract or pays funds needed for completion of a contract, becomes entitled to remaining contract proceeds in the hands of the government as the government's subrogee. See Priority or Payment From Remaining.Contract Proceeds, 64 Comp.Gen. 763, 765 (1985). Reliance is entitled to the excess of withheld funds.

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