B-145068, AUG. 18, 1961

B-145068, AUG. 18, 1961

TO THE SECRETARY OF STATE:

REFERENCE IS MADE TO A LETTER DATED JUNE 22, 1961, WITH ENCLOSURES, FROM ASSISTANT SECRETARY CROCKETT, REQUESTING OUR DECISION CONCERNING THE DISPOSITION OF THE SUM OF APPROXIMATELY $19,000, STATED TO BE THE BALANCE PAYABLE UNDER CONTRACT NO. SCC-25072, DATED JANUARY 2, 1958, ENTERED INTO BETWEEN THE OFFICE OF FOREIGN BUILDINGS OF YOUR DEPARTMENT AND THE UNITED CONSTRUCTION AND INDUSTRIAL COMPANY, LTD., OF SEOUL, KOREA, FOR THE CONSTRUCTION OF NINE STAFF APARTMENT BUILDINGS, CONTAINING 36 APARTMENTS, ON THE EMBASSY COMPOUND IN THAT CITY, ADDITIONAL INFORMATION FURNISHED BY LETTER OF JULY 28 FROM THE ACTING DEPUTY ASSISTANT SECRETARY FOR FOREIGN BUILDINGS HAS ALSO BEEN CONSIDERED.

THE QUESTION PRESENTED ARISES OUT OF CONFLICTING CLAIMS TO THE BALANCE DUE ASSERTED BY THE ORIGINAL CONTRACTOR AND THE SUCCESSIVE ASSIGNEES, AS WELL AS CERTAIN PARTIES WHO FURNISHED LABOR IN CONNECTION WITH PERFORMANCE OF THE CONTRACT.

UNDER THE TERMS AND CONDITIONS OF THE INDICATED CONTRACT, THE CONTRACTOR AGREED TO FURNISH ALL LABOR, EQUIPMENT, AND MATERIALS AND TO PERFORM ALL WORK REQUIRED FOR THE PROJECT, PAYMENT TO BE MADE THEREFOR IN AN AMOUNT EQUIVALENT TO $740,000 IN CERTAIN STATED CURRENCIES. IT WAS REPORTED THAT IN THE WINTER OF 1958-59, JUST PRIOR TO THE COMPLETION AND OCCUPANCY OF THE 36 APARTMENTS COVERED BY THE CONTRACT, THE OFFICE OF FOREIGN BUILDINGS ENTERED INTO NEGOTIATIONS WITH THE CONTRACTOR FOR THE CONSTRUCTION OF FOUR OR FIVE ADDITIONAL BUILDINGS ON THE SAME COMPOUND. NOT WISHING TO CONTINUE THE WORK CALLED FOR BY THE CONTRACT, UNITED ASSIGNED ITS CONTRACT RIGHTS AND RESPONSIBILITIES TO THE AMERICAN ENGINEERING AND EQUIPMENT COMPANY, LTD., THE LATTER BEING A CORPORATION WHICH HAD A CONTRACT WITH UNITED FOR THE SUPPLY OF ALL OFF-SHORE MATERIALS AND EQUIPMENT REQUIRED BY UNITED UNDER CONTRACTS WITH YOUR DEPARTMENT. THE ASSIGNMENT WAS PRESENTED TO THE EMBASSY IN JUNE, 1959, WHEN WORK UNDER THE CONTRACT WAS ABOUT 97 PERCENT COMPLETE, AND JUST FEW DAYS PRIOR TO THE ISSUANCE OF A LETTER OF SUBSTANTIAL COMPLETION. THE ASSIGNMENT WAS ACCEPTED BY YOUR DEPARTMENT, WHICH EXPECTED TO AMEND THE CONTRACT TO PROVIDE FOR THE CONSTRUCTION OF ADDITIONAL BUILDINGS.

IT WAS REPORTED FURTHER THAT WORK ON THE REMAINING THREE PERCENT OF THE CONTRACT AND NEGOTIATIONS FOR THE ADDITIONAL WORK CONTINUED UNTIL MID- OCTOBER, 1959. UNDER DATE OF OCTOBER 19, 1959, THE EMBASSY IN SEOUL INFORMED YOUR DEPARTMENT THAT AS THE RESULT OF A MONTHS-LONG DISPUTE BETWEEN UNITED AND AMERICAN (OF WHICH YOUR DEPARTMENT HAD NO ADVANCE INFORMATION) THE TECHNICAL CONSTRUCTION PERSONNEL OF AMERICAN HAD SEVERED THEIR CONNECTIONS WITH THAT COMPANY AND INCORPORATED A COMPANY KNOWN AS EASTERN ENGINEERS. AMERICAN DID NOT OBTAIN A TECHNICAL STAFF CAPABLE OF PERFORMING THE REMAINING WORK AND, UNDER THE CIRCUMSTANCES, UNITED REVOKED ITS ASSIGNMENT TO AMERICAN AND "REASSIGNED" THE CONTRACT TO EASTERN ENGINEERS. IT WAS REPORTED THAT THE "REASSIGNMENT" HAS NEVER BEEN ACCEPTED BY YOUR DEPARTMENT, IN ACCORDANCE WITH THE REQUIREMENTS OF GENERAL CONDITIONS 1-37 OF THE CONTRACT, AND BY LETTER OF JUNE 7, 1960, NOTICE OF TERMINATION OF THE CONTRACTOR'S RIGHT TO PROCEED WITH THE WORK WAS GIVEN TO AMERICAN, PURSUANT TO THE DEFAULT CLAUSE OF THE CONTRACT. THE CONSTRUCTION CREW -- ORIGINALLY EMPLOYEES OF UNITED, THEN AMERICAN, AND FINALLY OF EASTERN ENGINEERS--- WAS ALLOWED TO REMAIN ON THE CONSTRUCTION SITE UNTIL MID-JANUARY 1960, DURING WHICH TIME THEY PERFORMED MINOR SERVICES UNDER THE CONTRACT, BUT STILL DID NOT COMPLETE THE WORK. ALL THREE OF THE ABOVE COMPANIES HAVE MADE CLAIM FOR THE FULL AMOUNT OF $19,000 WORTH OF KOREAN HWAN AND HONG KONG DOLLARS NOW HELD BY YOUR DEPARTMENT IN THE RETENTION FUND, REPRESENTING THE BALANCE OF THE CONTRACT PRICE.

THE RECORD INDICATES THAT YOUR DEPARTMENT HAS BEEN UNABLE TO ARRANGE A SETTLEMENT OF THE CONFLICTING CLAIMS UNDER THE CONTRACT INVOLVED WHICH WOULD ALLOW PAYMENT TO BE MADE IN ACCORDANCE WITH THE TERMS OF THE CONTRACT, OR THE RELEASE OF THE DISPUTED MATERIALS AND EQUIPMENT TO THE RIGHTFUL OWNER. ACCORDINGLY, THE MATTER WAS SUBMITTED FOR A DECISION BY OUR OFFICE AS TO THE APPROPRIATE ACTION TO BE TAKEN.

IN BRINGING THE FOREGOING MATTERS TO OUR ATTENTION, YOUR DEPARTMENT EXPRESSED THE OPINION THAT AMERICAN HAS THE MOST MERITORIOUS CLAIM TO THE RETENTION FUND, THAT OPINION BEING BASED UPON YOUR ANALYSIS OF THE FACTS, SUBSTANTIALLY AS HEREIN SET FORTH. IN JUNE, 1959, WHEN UNITED REQUESTED THE GOVERNMENT TO APPROVE THE ASSIGNMENT TO AMERICAN, THE FORMER COMMUNICATED TO THE EMBASSY IN SEOUL ITS RELEASE DATED MARCH 16, 1959, BY WHICH IT RELEASED THE GOVERNMENT "FROM ANY CLAIM UNDER OR BY VIRTUE OF THIS CONTRACT OR ANY PART OF THIS CONTRACT THROUGH CHANGE ORDER NO. 10.' CHANGE ORDER NO. 10 WAS SIGNED ON JANUARY 30, 1959. IT WAS THEN STATED THAT THE ASSIGNMENT BY UNITED TO AMERICAN PURPORTED TO ASSIGN TO THE LETTER ALL RIGHTS AND DUTIES UNDER THE INDICATED CONTRACT SUBSEQUENT TO CHANGE ORDER NO. 10, AND THAT WHATEVER PAYMENTS WERE MADE BY THE DISBURSING OFFICER AT THE EMBASSY BETWEEN JANUARY 30, 1959, AND THE ACCEPTANCE OF THE ASSIGNMENT BY THE EMBASSY ON JUNE 24, 1959, WERE MADE TO UNITED. THE VIEW WAS EXPRESSED THAT UNITED HAS RECEIVED WHATEVER PAYMENTS ARE OWING TO IT AND IS NOW PRECLUDED FROM CLAIMING FURTHER PAYMENTS UNDER THE CONTRACT.

ON PAGE THREE OF THE LETTER OF JUNE 22, 1961, IT WAS STATED THAT IN VIEW OF THE RELEASE BY UNITED, THE GOVERNMENT'S ACCEPTANCE OF THE ASSIGNMENT TO AMERICAN, AND THE LANGUAGE OF THE DEPARTMENT'S LETTER TERMINATING AMERICAN'S RIGHT TO PROCEED WITH THE CONTRACT WORK, IT WOULD APPEAR TENABLE, ABSTRACTLY CONSIDERED, TO MAKE PAYMENT UNDER THE CONTRACT TO AMERICAN, ALTHOUGH, IT WAS STATED, CERTAIN AMOUNTS MIGHT HAVE TO BE PAID TO EASTERN ENGINEERS, ON A QUANTUM MERUIT BASIS, FOR THE MINOR ITEMS OF WORK ACCOMPLISHED DURING THE 2 1/2 MONTHS ITS CREW REMAINED ON THE SITE AFTER THEY LEFT AMERICAN AND FORMED THE NEW COMPANY. IT WAS POINTED OUT, HOWEVER, THAT ALMOST EVERY IMPORTANT FACT AND CONCLUSION OF LAW (IS DISPUTED BY THE PARTIES INVOLVED. ALSO, IT WAS STATED THAT INASMUCH AS THE CONTRACT ITSELF, THE ASSIGNMENT, AND THE PUTATIVE REVOCATION OF THE ASSIGNMENT ALL OCCURRED IN KOREA, IT WOULD FOLLOW THAT THE KOREAN LAW MAY GOVERN THE DISPOSITION OF THIS MATTER. FROM THE ENCLOSURES WITH THE LETTER OF JULY 28, 1961, IT APPEARS THAT UNITED HAS NOW OBTAINED IN THE SEOUL DISTRICT COURT A JUDGMENT AGAINST H. A. MCCONNELL (APPARENTLY AS REPRESENTING AMERICAN ENGINEERING AND EQUIPMENT CO., INC., WHICH IS REFERRED TO IN THE JUDGMENT AS "NOT REGISTERED IN KOREAN COURT AS A JURIDICAL PERSON"), WHICH "DETERMINED" UNITED'S RIGHT TO RECEIVE PAYMENT OF THE FULL BALANCE DUE UNDER THE CONTRACT.

ON THE RECORD PRESENTED, IT IS OUR VIEW THAT EASTERN ENGINEERS HAS NO RIGHT OR CLAIM AGAINST THE UNITED STATES SINCE THE "REASSIGNMENT" MADE TO THAT CONCERN BY UNITED HAS NEVER BEEN ACCEPTED BY YOUR DEPARTMENT, AS REQUIRED BY GENERAL CONDITIONS 1-37 OF THE CONTRACT, WHICH STIPULATED THAT AN ASSIGNMENT THEREUNDER COULD BECOME EFFECTIVE ONLY WITH THE WRITTEN CONSENT OF THE OTHER PARTY.

AS BETWEEN UNITED AND AMERICAN, WE ARE INCLINED TO AGREE WITH THE VIEW OF YOUR DEPARTMENT THAT THE LATTER COMPANY HAS A BETTER CLAIM AGAINST THE GOVERNMENT, UNDER LEGAL PRINCIPLES ACCEPTED BY AMERICAN COURTS AS APPLICABLE TO GOVERNMENT CONTRACTS. HOWEVER, THE JUDGMENT RENDERED IN THE KOREAN COURT, WHILE PRESUMABLY NOT BINDING UPON THE GOVERNMENT WHICH WAS NOT A PARTY TO THE SUIT, SUGGESTS THE POSSIBILITY THAT PAYMENT TO AMERICAN MIGHT NOT PROTECT THE GOVERNMENT AGAINST A SUIT BY UNITED IN A KOREAN COURT. UNITED'S CLAIM WOULD ALSO APPEAR TO DERIVE SOME SUPPORT FROM THE FOLLOWING LANGUAGE FROM PARAGRAPH 35 OF THE "OUTLINE OF FACTS" TRANSMITTED WITH THE LETTER OF JUNE 22, 1961.

"35. FOLLOWING THE TERMINATION OF AEEC'S RIGHT TO PROCEED WITH THE WORK, THE DEPARTMENT DEALT WITH UCIC AS THE SOLE REMAINING PARTY WITH WHICH THE UNITED STATES GOVERNMENT HAD PRIVITY UNDER CONTRACT SCC 25072. IT REFUSED AGAIN TO ACCEPT THE ASSIGNMENT TO EASTERN ENGINEERS. * * *"

IN VIEW OF THE SERIOUS FACTUAL DISPUTES, AS WELL AS THE UNCERTAINTY AS TO THE APPLICABLE LAW, THERE APPEARS TO BE FOR APPLICATION THE LONG ESTABLISHED RULE THAT WHEN THE FACTS INVOLVED RAISE A QUESTION AS TO THE PROPRIETY OR VALIDITY OF A CLAIM "IT IS THE UNDOUBTED RIGHT AND DUTY" OF THE ACCOUNTING OFFICERS OF THE GOVERNMENT TO REJECT A CLAIM IN WHOLE OR IN PART "AS THEIR JUDGMENT DICTATES"--- LONGWILL V. UNITED STATES, 17 CT.CL. 288, 291--- LEAVING THE CLAIMANTS TO PRESENT THEIR CASES IN A COURT OF LAW, FOR "THAT IS THE MAIN PROTECTION WHICH THE ACCOUNTING OFFICERS CAN SECURE FOR THEMSELVES AND FOR THE GOVERNMENT IN THE CASE OF CLAIMS OF DOUBTFUL VALIDITY IN FACT OR IN LAW. * * *" CHARLES V. UNITED STATES, 19 CT.CL. 316, 319.

THERE REMAINS FOR CONSIDERATION YOUR REQUEST FOR OUR DECISION AS TO WHETHER UNDER THE LAW AND CERTAIN PROVISIONS OF THE CONTRACT THE GOVERNMENT HAS AUTHORITY TO WITHHOLD AMOUNTS PAYABLE UNDER THE CONTRACT AND TO MAKE PAYMENTS DIRECTLY TO UNPAID WORKERS WHO PERFORMED SERVICES THEREUNDER, ETC. PARAGRAPH 1-35 OF THE GENERAL CONDITIONS PROVIDES, IN PART, AS FOLLOWS:

"THERE MAY BE WITHHELD FROM THE CONTRACTOR SO MUCH OF THE ACCRUED PAYMENTS OR ADVANCES AS MAY BE CONSIDERED NECESSARY TO PAY LABORERS AND MECHANICS EMPLOYED BY THE CONTRACTOR OR ANY SUBCONTRACTOR THE FULL AMOUNT OF WAGES REQUIRED BY THIS CONTRACT. IN THE EVENT OF FAILURE TO PAY ANY LABORER FOR ALL OR PART OF THE WAGES REQUIRED BY THIS CONTRACT, THE CONTRACTING OFFICER MAY TAKE SUCH ACTION AS MAY BE NECESSARY TO CAUSE THE SUSPENSION, UNTIL SUCH VIOLATIONS HAVE CEASED, OF ANY FURTHER PAYMENT, ADVANCE, OR GUARANTEE OF FUNDS TO OR FOR THE GOVERNMENT PRIME CONTRACTOR. THE CONTRACTOR AGREES TO INSERT THIS CLAUSE IN ALL SUBCONTRACTS AND FURTHER AGREES THAT A BREACH OF ANY OF THE REQUIREMENTS OF THESE CLAUSES MAY BE GROUNDS FOR TERMINATION OF THIS CONTRACT.'

IT WILL BE NOTED THAT THE AUTHORITY CONTAINED IN THE QUOTED LANGUAGE IS LIMITED TO THE WITHHOLDING OF SO MUCH OF ACCRUED PAYMENTS TO THE CONTRACTOR AS MAY BE CONSIDERED NECESSARY TO PAY LABORERS AND MECHANICS THE FULL AMOUNT OF WAGES REQUIRED BY THE CONTRACT, AND TO SUSPEND OR TERMINATE THE CONTRACT UNTIL VIOLATIONS ARE CURED; IT DOES NOT PROVIDE FOR DIRECT PAYMENT OF SUCH WAGES TO THE LABORERS OR MECHANICS BY THE CONTRACTING OFFICER.

IN A DECISION DATED APRIL 20, 1954, B-117954, PUBLISHED AT 33 COMP. GEN. 496, OUR OFFICE HAD OCCASION TO CONSIDER THE MATTER OF THE DISPOSITION OF FUNDS WITHHELD FOR THE PROTECTION OF LABORERS AND MECHANICS UNDER SIMILAR PROVISIONS IN CONSTRUCTION CONTRACTS, AUTHORIZING THE CONTRACTING OFFICER TO WITHHOLD FROM THE CONTRACTOR SO MUCH OF THE ACCRUED PAYMENTS OR ADVANCES AS MIGHT BE CONSIDERED NECESSARY TO PAY LABORERS AND MECHANICS "THE FULL AMOUNT OF WAGES REQUIRED BY THE CONTRACT.' A COPY OF THE DECISION OF APRIL 20, 1954, IS ENCLOSED FOR READY REFERENCES. IT WAS HELD THEREIN, IN EFFECT, THAT--- UNDER CONTRACT PROVISIONS ANALOGOUS TO THE INSTANT MATTER--- THERE IS NO AUTHORITY OF LAW WHEREBY OUR OFFICE OR ANY OTHER AGENCY OF THE GOVERNMENT COULD DISTRIBUTE WITHHOLDINGS TO WORKERS WHO HAD NOT BEEN PAID OVERTIME. WE FEEL THAT THE HOLDING IN THE CITED DECISION IS APPLICABLE TO THE FACTS OF THE INSTANT CASE AND THAT THERE IS NO AUTHORITY UNDER THE CONTRACT OR OTHERWISE UNDER WHICH YOUR DEPARTMENT COULD MAKE PAYMENTS DIRECT TO THE UNPAID LABORERS AND MECHANICS, OR OTHER CLAIMANTS. OUR HOLDING HEREIN MAKES UNNECESSARY ANY RESPONSE TO YOUR FURTHER INQUIRY CONCERNING THE MANNER OF PROOF REQUIRED TO DETERMINE THE WAGE CLAIMS, ETC. ..END :