B-171018, JAN 4, 1971

B-171018, JAN 4, 1971

MILLER ACT BOND DECISION HOLDING THAT BONDS FURNISHED BY FIXED-PRICE SUBCONTRACTORS OF AEC MANAGEMENT CONTRACTORS ARE MILLER ACT BONDS. WHERE AEC COST-TYPE MANAGEMENT CONTRACTORS WHO OPERATE WITH AEC FUNDS AND MANAGE CONSTRUCTION OF AEC FACILITIES DO NOT FURNISH PAYMENT AND PERFORMANCE BONDS, BUT RATHER OBTAIN THEM FROM THE FIXED-PRICE CONSTRUCTION SUBCONTRACTORS AND THE COST CONTRACTOR AND THE AEC ARE NAMED AS JOINT OBLIGEES, IN LIGHT OF U.S. V HARDER INDUSTRIAL CONTRACTORS, INC., 225 F. SUPP. 699 (1963), THESE BONDS ARE TO BE CONSIDERED MILLER ACT BONDS.

TO DR. SEABORG:

REFERENCE IS MADE TO LETTER OF OCTOBER 8, 1970, FROM THE GENERAL COUNSEL, REQUESTING TO BE ADVISED WHETHER OUR OFFICE AGREES WITH THE CONCLUSION THEREIN THAT THE BONDS FURNISHED BY FIXED-PRICE SUBCONTRACTORS OF ATOMIC ENERGY COMMISSION (AEC) MANAGEMENT CONTRACTORS ARE MILLER ACT BONDS.

THE MILLER ACT, 40 U.S.C. 270A, ET SEQ., IS THE LAW PROVIDING FOR THE FURNISHING OF PAYMENT AND PERFORMANCE BONDS ON CONTRACTS FOR CONSTRUCTION, ALTERATION OR REPAIR OF PUBLIC BUILDINGS OR PUBLIC WORKS IN EXCESS OF $2,000.

THE OCTOBER 8 LETTER INDICATES THAT AS A MATTER OF PRACTICE AEC COST TYPE MANAGEMENT CONTRACTORS WHO OPERATE WITH AEC FUNDS AND MANAGE CONSTRUCTION OF AEC FACILITIES DO NOT FURNISH PAYMENT AND PERFORMANCE BONDS, BUT RATHER OBTAIN THEM FROM THE FIXED-PRICE CONSTRUCTION SUBCONTRACTORS PURSUANT TO AEC PROCUREMENT REGULATIONS PROVIDING THAT SUCH BONDS BE OBTAINED ON STANDARD FORMS 25 AND 25A, EXCEPT THAT THE FORMS BE MODIFIED TO HAVE THE COST CONTRACTOR AND AEC NAMED AS JOINT OBLIGEES. THE LETTER INDICATES THAT THIS PRACTICE HAS CAUSED SOME SURETY ASSOCIATIONS TO QUESTION WHETHER THE BONDS FURNISHED BY THE SUBCONTRACTORS ARE MILLER ACT BONDS.

THE MATTER HAS BEEN QUESTIONED BY THE ASSOCIATIONS BECAUSE OF THE DOUBT CAST BY SOME COURT DECISIONS. HOWEVER, THE DECISION IN UNITED STATES V HARDER INDUSTRIAL CONTRACTORS, INC., 225 F. SUPP. 699 (1963), WHICH INVOLVED A PAYMENT BOND FURNISHED BY A LUMP-SUM SUBCONTRACTOR TO AN AEC COST-TYPE CONTRACTOR, APPEARS TO BE PARTICULARLY IN POINT. IN THAT DECISION AT PAGE 701 IT WAS STATED:

"THE EXHIBITS IN EVIDENCE CONCLUSIVELY ESTABLISH THAT THE BOND UNDER STUDY IS, FOR ALL INTENTS AND PURPOSES, IDENTICAL WITH STANDARD FORM 25A, WHICH IS CONCEDED TO BE U.S. STANDARD FORM OF A MILLER ACT BOND, A FORM ADOPTED IN 41 U.S.C. SEC 54.16, APPENDIX. THE ONLY DIFFERENCE BETWEEN THIS BOND AND THE FORM, IS THAT KAISER ENGINEERS DIVISION OF HENRY J. KAISER CO. (THE AEC COST-TYPE CONTRACTOR) IS A JOINT OBLIGEE WITH THE UNITED STATES ON THE BOND HERE IN QUESTION. *** I CAN THINK OF NO VALID REASON WHY THE ADDITION OF AN OBLIGEE SHOULD DESTROY THE FORCE AND EFFECT OF AN OTHERWISE VALID MILLER ACT BOND. *** "

AT PAGE 702, IT WAS FURTHER STATED:

" *** IT SEEMS RATHER CLEAR THAT THE COMMISSION WAS TREATING KAISER ENGINEERS AS ITS SUPERVISORY AGENT AND THAT HARDER WAS TREATED AS A PRIME CONTRACTOR IN CONNECTION WITH THE PERFORMANCE OF THE WORK OUTLINED IN ITS CONTRACT. I CONCLUDE THAT THE BOND WAS POSTED PURSUANT TO THE PROVISIONS OF THE MILLER ACT."

THE HARDER CASE WAS CITED WITH APPROVAL IN FIDELITY AND DEPOSIT COMPANY OF MARYLAND V HARRIS, 360 F. 2D 402 (1966), WHICH HELD THAT THE CONSTRUCTION SUBCONTRACTOR PAYMENT BOND NAMING THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) AND THE NASA OPERATING CONTRACTOR AS JOINT OBLIGEES WAS A MILLER ACT BOND.

THERE ARE THREE OTHER REPORTED DECISIONS THAT HAVE CONSIDERED PAYMENT BONDS FURNISHED TO AEC COST-TYPE CONTRACTORS AS OTHER THAN MILLER ACT BONDS, BUT THESE ARE DISTINGUISHABLE. IN CARRUTH V STANDARD ACCIDENT INSURANCE CO., 329 F. 2D 690 (1964), THE COURT FOUND THAT THE COST CONTRACTOR HAD FURNISHED THE GOVERNMENT THE STATUTORY BONDS AND THEREFORE DID NOT CONSIDER THE SUBCONTRACTOR'S BOND TO ALSO BE A MILLER ACT BOND. IN UNITED STATES, FOR THE USE OF MACKENZIE-FOSTER V COMBUSTION ENGINEERING, INC., 38 LABOR CASES 68476 (1959), AN EXEMPTION, NO LONGER IN EFFECT, WAS IN FORCE PERMITTING AEC TO ENTER INTO CONTRACTS WITHOUT REGARD TO THE MILLER ACT. IN LAYRITE CONCRETE PRODUCTS V H. HALVORSON, INC., 411 P. 2D 405 (1966), THE ISSUE OF MILLER ACT APPLICATION WAS NOT RAISED OR CONSIDERED IN THE DECISION.

IN VIEW OF THE FOREGOING, PARTICULARLY IN LIGHT OF THE DECISION IN THE HARDER CASE, WE WOULD VIEW THE BONDS FURNISHED BY FIXED-PRICE SUBCONTRACTORS OF AEC MANAGEMENT CONTRACTORS AS MILLER ACT BONDS.