B-162163, SEP. 11, 1967

B-162163, SEP. 11, 1967

CONTRACTS - PAYMENTS - SURETY RELEASE AGREEMENT DECISION TO CORPS OF ENGINEERS, SAVANNAH DISTRICT, RE FINAL PAYMENT UNDER CONTRACT FOR REROOFING BUILDINGS AT FORT BRAGG, N.C. SURETY WHO CLAIMS BALANCE DUE UNDER CONTRACT FOR PAYMENT OF UNPAID MATERIALMEN AND AGREES TO SAVE GOVT. AGAINST CLAIMS OF OTHERS INCLUDING ASSIGNEE UNDER ASSIGNMENT PURSUANT TO 31 U.S.C. 203 MAY BE PAID AMOUNTS DUE SINCE CLAIMS OF GOVT. (I.R.S.) HAVE ALREADY BEEN SATISFIED AND SINCE GOVT. IS ONLY A STAKEHOLDER; PROVIDED THAT CERTAIN MODIFICATIONS ARE MADE IN THE RELEASE AGREEMENT.

TO COLONEL WILLIAM L. BARNES:

YOUR LETTERS DATED MAY 18, 1967, AND JULY 10, 1967, WITH ENCLOSURES, ADDRESSED TO THE CHIEF OF ENGINEERS, DEPARTMENT OF THE ARMY, YOUR FILE SASVL, CONCERNING FINAL PAYMENT ON CONTRACT NO. DA-09-133-ENG-5945, WERE FORWARDED HERE FOR CONSIDERATION BY SECOND ENDORSEMENT DATED JULY 28, 1967, OF THE CHIEF OF ENGINEERS, FILE ENGGC-K (18 MAY 67).

CONTRACT NO. DA-09-133-ENG-5945 WAS ENTERED INTO ON JUNE 1, 1966, BY NATIONWIDE BUILDERS, INCORPORATED, AND THE UNITED STATES FOR THE REROOFING OF MOBILIZATION TYPE BUILDINGS AT FORT BRAGG, NORTH CAROLINA. FIDELITY AND CASUALTY COMPANY OF NEW YORK EXECUTED THE PERFORMANCE AND PAYMENT BONDS ON THE CONTRACT. THE ORIGINAL CONTRACT WAS FOR $219,384.00 BASED UPON ESTIMATES AND THIS AMOUNT WAS INCREASED BY VARIOUS CONTRACT MODIFICATIONS. ALL WORK UNDER THE CONTRACT WAS COMPLETED AND ACCEPTED. UPON COMPLETION OF THE CONTRACT THERE REMAINED DUE AND PAYABLE FROM THE GOVERNMENT A SUM IN EXCESS OF $46,000. THE FIDELITY AND CASUALTY COMPANY OF NEW YORK CLAIMED THE BALANCE DUE AS SURETY, STATING THAT IT HAD TO PAY OUT MORE THAN $60,000 TO THE CONTRACTOR'S UNPAID MATERIALMEN. IN ADDITION THE LIBERTY NATIONAL BANK AND TRUST COMPANY, SAVANNAH, GEORGIA, CLAIMED AN INTEREST IN THE SAID CONTRACT BALANCE BY REASON OF AN ASSIGNMENT TO IT BY THE CONTRACTOR IN AUGUST 1966, OF ALL SUMS DUE OR TO BECOME DUE UNDER THE CONTRACT. THE ASSIGNMENT WAS MADE IN ACCORDANCE WITH THE ASSIGNMENT OF CLAIMS ACT OF 1940, 31 U.S.C. 203. THE BANK, HOWEVER, BY LETTER OF MAY 11, 1967, LIMITED ITS CLAIM TO $12,000 FOR SUMS ADVANCED TO THE CONTRACTOR. THE INTERNAL REVENUE SERVICE WAS ALSO A CLAIMANT FOR TAX DELINQUENCIES OF THE CONTRACTOR AND SERVED A NOTICE OF LEVY ON THE DISTRICT ENGINEER AT SAVANNAH, THUS IMPOSING A TAX LIEN AGAINST THE CONTRACT BALANCE HELD.

THEREAFTER A CHECK FOR $18,863.42, MADE PAYABLE TO THE TREASURER OF THE UNITED STATES, WAS GIVEN TO THE INTERNAL REVENUE SERVICE TO COVER THE TAX LIEN, THE GOVERNMENT EXERCISING ITS RIGHT OF SET-OFF. SEE MUNSEY TRUST COMPANY V. UNITED STATES, 332 U.S. 234.

THE QUESTION FOR CONSIDERATION CONCERNS THE DISPOSITION OF THE REMAINING CONTRACT BALANCE, IN WHICH THE GOVERNMENT'S PRESENT INTEREST IS ONLY THAT OF A STAKEHOLDER.

THE SURETY, WITH A LETTER DATED JULY 21, 1967, TO OUR OFFICE, ENCLOSED A COPY OF A PROPOSED ,HOLD HARMLESS AGREEMENT.' BY THIS AGREEMENT IT IS PROPOSED THAT THE GOVERNMENT RELEASE THE BALANCE OF THE CONTRACT FUNDS (APPROXIMATELY $27,000) TO THE SURETY IN EXCHANGE FOR THE SURETY'S AGREEMENT, AS FOLLOWS:

"WHEREAS, NATIONWIDE BUILDERS, INC., HEREIN CALLED -CONTRACTOR-, EXECUTED WITH THE UNITED STATES OF AMERICA, THROUGH THE CORPS OF ENGINEERS CONTRACT NO. DA-09-133-ENG-5945, UNDER THE TERMS OF WHICH THE FIDELITY AND CASULATY COMPANY OF NEW YORK, HEREIN CALLED -SURETY-, PROVIDED THE PAYMENT AND PERFORMANCE BONDS REQUIRED OF THE CONTRACTOR, AND

"WHEREAS, THE SURETY CERTIFIES THAT THE CONTRACTOR SO DEFAULTED IN THE PERFORMANCE OF SAID CONTRACT AS TO CAUSE THE SURETY TO PAY OR TO BE LIABLE TO PAY, OR BOTH, VARIOUS COSTS FOR THE PERFORMANCE OF SAID CONTRACT, ALL OF WHICH COSTS EXCEED THE AMOUNT ADMITTED BY THE GOVERNMENT TO NOW BE OWED AND PAYABLE BY THE GOVERNMENT BECAUSE OF SAID CONTRACT, AND ACCORDINGLY THE SURETY CLAIMS THAT SUBROGATION AND ASSIGNMENTS OPERATING BY EXPRESSED AGREEMENT, LAW, AND EQUITY ENTITLE THE SURETY TO THE WHOLE AMOUNT DUE AND PAYMENT OWED BY THE GOVERNMENT UNDER SAID CONTRACT.

"NOW, THEREFORE, THE PARTIES HERETO, IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL PROMISE HEREIN CONTAINED, DO ENTER INTO THE FOLLOWING AGREEMENT:

"/1) THE UNITED STATES CORPS OF ENGINEERS, THROUGH ITS CONTRACTING OFFICER, AGREES TO PROMPTLY PAY TO SAID SURETY ALL MONEY NOW OWED AND PAYABLE BY THE GOVERNMENT BECAUSE OF SAID CONTRACT; SUCH PAYMENT TO BE MADE BY CHECK DRAWN UPON THE TREASURY OF THE UNITED STATES OF AMERICA AND MADE PAYABLE ONLY TO SAID SURETY.

"/2) THE SAID SURETY TO INDUCE SAID PAYMENT, AND IN CONSIDERATION THEREOF, TO THE EXTENT OF THE AMOUNT OF SAID PAYMENT, FOREVER AGREES TO DEFEND, PROTECT, INDEMNIFY, AND HOLD HARMLESS THE UNITED STATES OF AMERICA, THE CORPS OF ENGINEERS, AND THE SAID CONTRACTING OFFICER, AND ALL OTHER PERSONS ASSOCIATED WITH THEM FROM ALL LOSSES, COSTS, SUITS, CLAIMS, ADMINISTRATIVE ACTIONS WHICH MAY BE CAUSED BY, INSTITUTED OR THREATENED AGAINST ANY ONE OR MORE OF THEM BY ANY PERSON, FIRM, CORPORATION, OR GOVERNMENT AGENCY, OR OTHERWISE BECAUSE OF SAID PAYMENT TO SAID SURETY. SAID SURETY HEREBY FOREVER WARRANTS ITS LEGAL AND EQUITABLE ENTITLEMENTS AND RIGHTS TO THE PAYMENTS TO, AT THE SURETY'S COST, (INCLUDING ATTORNEYS' FEES) DEFEND THE UNITED STATES OF AMERICA, THE UNITED STATES CORPS OF ENGINEERS, THE CONTRACTING OFFICER, AND ALL OTHERS WHO HAVE ALLOWED SUCH PAYMENT CONSISTENT WITH THIS AGREEMENT AND INDUCEMENT OF SAID SURETY. THE SURETY HEREBY MAKES THIS CONTRACT AND HOLD HARMLESS AGREEMENT, FOR PURPOSES OF LAW, ITS BOND UNDER SEAL SO AS TO CAUSE THE OBLIGATION OF THE SURETY TO FOREVER PROTECT THE UNITED STATES OF AMERICA AND ITS AGENCIES AND OFFICES AS HEREIN DONE.'

THE SURETY URGES THAT IN VIEW OF THE DECISIONS IN THE CASES THE HOME INDEMNITY COMPANY V. THE UNITED STATES, CT. CL. NO. 29-66, DECIDED MAY 12, 1967, AND ROYAL INDEMNITY COMPANY V. UNITED STATES AND JERSEY STATE BANK, THIRD PARTY, 371 F.2D 462, THERE CAN BE NO DOUBT AS TO THE SURETY'S ENTITLEMENT TO THE AMOUNT HELD BY THE GOVERNMENT. IT IS ALSO URGED THAT THE COSTS AND EXPENSES OF AN INTERPLEADER ACTION WOULD BE SAVED TO THE GOVERNMENT, SINCE THE SURETY WOULD BE AGREEING TO DEFEND AND TO SAVE THE GOVERNMENT HARMLESS AGAINST CLAIMS BY OTHERS TO THE AMOUNTS RELEASED TO THE SURETY.

SINCE THE CLAIMS OF THE GOVERNMENT (INTERNAL REVENUE SERVICE) HAVE ALREADY BEEN SATISFIED BY OFFSET AGAINST THE AMOUNTS DUE THE CONTRACTOR AND SINCE THE GOVERNMENT IS ONLY A STAKEHOLDER OF THE REMAINING AMOUNT, WE ARE NOT REQUIRED TO OBJECT TO THE PAYMENT OF THE REMAINING AMOUNT TO THE SURETY UPON EXECUTION OF THE "HOLD HARMLESS AGREEMENT," PROVIDED HOWEVER, THAT THERE BE INSERTED AFTER THE SECOND PREMISE, A THIRD PREMISE STATING SUBSTANTIALLY AS FOLLOWS:

"AND WHEREAS, THE GOVERNMENT HAS SATISFIED ITS TAX CLAIMS AGAINST THE CONTRACTOR BY OFFSET AGAINST AMOUNTS DUE UNDER THE SAID CONTRACT.'

WE SUGGEST, ALSO, THAT THE APPROXIMATE AMOUNT NOW IN THE HANDS OF THE CORPS OF ENGINEERS, UNDERSTOOD TO BE ABOUT $27,000, BE INSERTED IN CLAUSE (1) OF THE AGREEMENT AFTER THE WORD ,CONTRACT.' IN ADDITION, THE WORD "AND" SHOULD BE ADDED TO THE SECOND SENTENCE OF CLAUSE (2) AFTER THE WORD "PAYMENTS.'