B-161445, JUN. 2, 1967

B-161445, JUN. 2, 1967

TO FIRST LIEUTENANT J. JERRY KANTOR:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 26, 1967, REQUESTING IN ACCORDANCE WITH ASPR 18-618.5 (C) (IV) OUR OPINION WHETHER UNEXPENDED CONTRACT FUNDS, UNEARNED BY THE ORIGINAL DEFAULTED CONTRACTOR, AND IN EXCESS OF THE SURETY'S COMPLETION COSTS, MAY BE PAID OVER TO THE SURETY AS PARTIAL REIMBURSEMENT FOR ITS EXPENDITURES MADE UNDER THE PAYMENT BOND.

THE CONTRACT IN QUESTION, NO. DA-04-013-AVI-442, FOR THE REPAIR AND ALTERATION OF THREE MESS HALL BUILDINGS, WAS AWARDED MARCH 31, 1966, BY THE UNITED STATES ARMY ARMOR AND DESERT TRAINING CENTER, FORT IRWIN, CALIFORNIA, TO FRANK HUNTER OF SAN BERNARDINO, CALIFORNIA, AT $48,670. WHEN TERMINATED FOR DEFAULT ON JULY 25, 1966, THE CONTRACT PRICE HAD BEEN INCREASED BY MODIFICATIONS TO $53,179.26. AT TERMINATION THE CONTRACTOR HAD EARNED PARTIAL PAYMENTS TOTALING $17,641.63, OF WHICH $15,877.47 HAD BEEN PAID AND $1,764.16 HAD BEEN HELD BY THE GOVERNMENT AS RETAINAGES.

THE CONTRACT WAS COMPLETED UNDER THE DIRECTION OF THE DEFAULTED CONTRACTOR'S SURETY, NATIONAL AUTOMOBILE AND CASUALTY INSURANCE COMPANY, PURSUANT TO VERBAL ARRANGEMENTS MADE ON JULY 26, 1966, WHICH WERE ULTIMATELY FORMALIZED BY A "TAKE OVER" AGREEMENT SIGNED NOVEMBER 17, 1966, SOME TWO MONTHS AFTER THE COMPLETION OF THE CONTRACT WORK.

THE SURETY, BY LETTER OF SEPTEMBER 15, 1966, AND SUBSEQUENT CORRESPONDENCE, REQUESTED PAYMENT OF THE UNEXPENDED CONTRACT FUNDS, BOTH UNEARNED FUNDS AND EARNED RETAINAGES, FOR REIMBURSEMENT OF ITS EXPENDITURES UNDER THE PERFORMANCE AND PAYMENT BONDS. YOUR OFFICE HAS APPROVED PAYMENTS TOTALING $22,884.45 AS COSTS NECESSARY FOR THE COMPLETION OF THE PROJECT, BUT HAS REJECTED CLAIMS TOTALING $13,227.50 AS COSTS INCURRED UNDER THE PAYMENT BOND WHICH ARE NOT REIMBURSABLE. ALSO, A TAX LIEN OF $641.67 AGAINST THE DEFAULTED CONTRACTOR HAS BEEN PAID OUT OF ITS RETAINED EARNING.

THUS, A TOTAL OF $39,403.59 HAS BEEN PAID OUT OF $53,179.26 COMMITTED TO THE CONTRACT, AND THE SURETY HAS OUTSTANDING DOCUMENTED CLAIMS FOR $13,227.50 IN COSTS INCURRED PURSUANT TO ITS OBLIGATIONS UNDER THE PAYMENT BOND.

PARAGRAPH 2 (D) OF THE TAKE-OVER AGREEMENT PROVIDES:

"IN NO EVENT SHALL THE SURETY BE ENTITLED TO BE PAID ANY AMOUNT IN EXCESS OF ITS TOTAL EXPENDITURES NECESSARILY MADE IN COMPLETING THE WORK AND DISCHARGING ITS LIABILITIES UNDER THE PAYMENT BOND OF THE DEFAULTING CONTRACTOR. FURTHERMORE, PAYMENTS TO THE SURETY TO REIMBURSE IT FOR DISCHARGING ITS LIABILITIES UNDER THE PAYMENT BOND OF THE DEFAULTING CONTRACTOR SHALL BE ONLY ON AUTHORITY OF (A) MUTUAL AGREEMENT BETWEEN THE GOVERNMENT, THE DEFAULTING CONTRACTOR, AND THE SURETY, OR (B) DETERMINATION OF THE COMPTROLLER GENERAL AS TO PAYEE AND AMOUNT, OR (C) ORDER OF A COURT OF COMPETENT JURISDICTION.'

THIS PROVISION OF THE TAKE-OVER AGREEMENT ACCORDS WITH ASPR 18 618.5 (C) (IV).

SINCE $13,775.67 REMAINS UNEXPENDED OUT OF THE CONTRACT FUND AFTER PAYMENT OF THE REMAINDER OF THE SURETY'S COMPLETION COSTS, MORE THAN ENOUGH REMAINS COMMITTED TO THE CONTRACT TO COVER THE $13,227.50 INCURRED BY THE SURETY PURSUANT TO ITS PAYMENT BOND OBLIGATIONS.

PARAGRAPH 2 (D) OF THE TAKE-OVER AGREEMENT OF NOVEMBER 17, 1966, PERMITS REIMBURSEMENT OF THE SURETY'S EXPENDITURES UNDER THE PAYMENT BOND OUT OF UNEARNED CONTRACT FUNDS UPON "MUTUAL AGREEMENT BETWEEN THE GOVERNMENT, THE DEFAULTING CONTRACTOR, AND THE SURETY.' IN ORDER TO FULLY PROTECT THE INTERESTS OF THE GOVERNMENT IN THIS CASE, THE CONSENT OF THE DEFAULTED CONTRACTOR MUST BE SECURED PRIOR TO APPROVAL BY OUR OFFICE OF ANY REIMBURSEMENT OF THE SURETY'S EXPENDITURES UNDER THE PAYMENT BOND OUT OF THE REMAINING CONTRACT FUND. WERE WE TO DO OTHERWISE, PAYMENT MIGHT NOT RELIEVE THE GOVERNMENT OF THE OBLIGATION.

THEREFORE, THE SURETY SHOULD BE ADVISED THAT UPON ITS FURNISHING THE WRITTEN CONSENT OF THE DEFAULTED CONTRACTOR TO THE PROPOSED PAYMENTS, YOU ARE AUTHORIZED TO REIMBURSE THE SURETY ITS DOCUMENTED COSTS UNDERITS PAYMENT BOND OBLIGATIONS OUT OF THE REMAINING UNEARNED AND UNEXPENDED CONTRACT FUNDS.

THE VOUCHER COPIES AND OTHER DOCUMENTS INCLUDED IN YOUR LETTER OF APRIL 26, 1967, ARE HEREWITH RETURNED.