Skip to main content

B-174488, DEC 29, 1971

B-174488 Dec 29, 1971
Jump To:
Skip to Highlights

Highlights

MADISON: REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 5. RELATIVE TO CONFLICTING CLAIMS WHICH HAVE ARISEN IN CONNECTION WITH AN AMOUNT OF $126. IT IS REPORTED THAT THE TOTAL CONTRACT PRICE IS $1. THAT THE CONTRACT WORK WAS COMPLETED BY THE CONTRACTOR. THAT PAYMENTS UNDER THE CONTRACT SINCE NOVEMBER 1970 HAVE BEEN MADE TO THE BANK OF NEW MEXICO. THE RECORD INDICATES THAT MOST OF THOSE CLAIMS HAVE NOT BEEN SETTLED BUT THE SURETY PROPOSES TO PROVIDE AN AGREEMENT TO INDEMNIFY AND HOLD THE UNITED STATES HARMLESS FROM ANY LOSS. IT IS STATED THAT YOU DO NOT PROPOSE TO PAY ANY ADDITIONAL SUM TO THE BANK OF NEW MEXICO SINCE IT HAS BEEN PAID MORE THAN THE AMOUNT OF $175. IN WHICH IT WAS HELD BY OUR OFFICE THAT A PARTIAL ASSIGNMENT OF A CLAIM WAS INVALID AS BETWEEN THE GOVERNMENT AND THE ASSIGNEE BECAUSE THE CONTRACT INVOLVED DID NOT CONTAIN A PROVISION PERMITTING PARTIAL ASSIGNMENTS OF MONEYS DUE OR TO BECOME DUE UNDER THE CONTRACT.

View Decision

B-174488, DEC 29, 1971

LETTER REPORT DECISION CONCERNING THE CONFLICTING CLAIMS ON THE BALANCE DUE UNDER A CONTRACT BETWEEN THE SOIL CONSERVATION SERVICE, DEPARTMENT OF AGRICULTURE, AND THE ROBERTS CORPORATION. UNLESS THE CONTRACTOR, THE ASSIGNEE BANK, AND THE SURETY SETTLE THEIR DIFFERENCES BY MUTUAL AGREEMENT, THE FULL AMOUNT OF THE GOVERNMENT'S TAX CLAIM SHOULD BE SET OFF AND THE REMAINDER SHOULD BE WITHHELD PENDING A JUDICIAL DETERMINATION OF THE RIGHTS OF THE PARTIES.

TO MR. MADISON:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 5, 1971, WITH ENCLOSURES, RELATIVE TO CONFLICTING CLAIMS WHICH HAVE ARISEN IN CONNECTION WITH AN AMOUNT OF $126,506.70, DETERMINED AS THE BALANCE DUE UNDER CONTRACT NO. 12 -10-290-1830, DATED JUNE 18, 1970, ENTERED INTO ON BEHALF OF THE UNITED STATES BY THE SOIL CONSERVATION SERVICE, DEPARTMENT OF AGRICULTURE, WITH THE ROBERTS CORPORATION, ALBUQUERQUE, NEW MEXICO.

IT IS REPORTED THAT THE TOTAL CONTRACT PRICE IS $1,049,186.50; THAT THE CONTRACT WORK WAS COMPLETED BY THE CONTRACTOR, AND THAT PAYMENTS UNDER THE CONTRACT SINCE NOVEMBER 1970 HAVE BEEN MADE TO THE BANK OF NEW MEXICO, ALBUQUERQUE, NEW MEXICO, AS ASSIGNEE OF THE CONTRACTOR, EXCEPT FOR AN AGREED UPON SETOFF OF $103,672.07 AS AN INTERNAL REVENUE COLLECTION. THE INDICATED CONTRACT BALANCE REPORTEDLY CONSISTS OF AMOUNTS DUE ON APRIL, MAY AND JUNE, 1971, PROGRESS PAYMENT ESTIMATES, WITH THE FINAL PAYMENT ESTIMATE FOR JUNE 1971 INCLUDING $29,470.30 DUE FROM RETAINED PERCENTAGES ON PRIOR CONTRACT PROGRESS PAYMENT ESTIMATES.

THE HOME INDEMNITY COMPANY, DENVER, COLORADO, SURETY ON THE CONTRACT PERFORMANCE AND PAYMENT BONDS, CLAIMS IN EXCESS OF $126,506.70 ON ACCOUNT OF CLAIMS OF SUBCONTRACTORS AND MATERIALMEN AGAINST THE SURETY UNDER THE PAYMENT BOND. THE RECORD INDICATES THAT MOST OF THOSE CLAIMS HAVE NOT BEEN SETTLED BUT THE SURETY PROPOSES TO PROVIDE AN AGREEMENT TO INDEMNIFY AND HOLD THE UNITED STATES HARMLESS FROM ANY LOSS, COST OR EXPENSE IN CONNECTION WITH OR ARISING OUT OF ANY CLAIM OR SUIT WHICH MAY BE ASSERTED OR BROUGHT BY THE BANK OF NEW MEXICO, AS ASSIGNEE OF THE CONTRACTOR, OR ANY OTHER PERSON OR CLAIMANT, AGAINST THE UNITED STATES, BASED UPON PAYMENT TO THE SURETY OF THE AMOUNT TO BE RELEASED TO IT PURSUANT TO THE AGREEMENT.

THE BANK OF NEW MEXICO AND THE CONTRACTOR ALSO CLAIM THE BALANCE REMAINING DUE UNDER THE CONTRACT, AND THE CONTRACTOR SUBMITTED AN ADDITIONAL CLAIM FOR $100,000 BASED UPON A SUSPENSION IN THE MAKING OF CONTRACT PAYMENTS FOLLOWING THE RECEIPT BY THE CONTRACTING OFFICER OF A TELEGRAM DATED APRIL 20, 1971, FROM THE HOME INSURANCE COMPANY (APPARENTLY OWNED AND CONTROLLED BY THE SAME INTERESTS WHICH OWN AND CONTROL THE HOME INDEMNITY COMPANY), DEMANDING THE RETENTION OF ALL FUNDS DUE OR TO BECOME DUE UNDER THE CONTRACT PENDING A RELEASE OF ALL CLAIMS ON THE CONTRACT BONDS.

IT IS STATED THAT YOU DO NOT PROPOSE TO PAY ANY ADDITIONAL SUM TO THE BANK OF NEW MEXICO SINCE IT HAS BEEN PAID MORE THAN THE AMOUNT OF $175,000 SHOWN ON THE FACE OF THE ASSIGNMENT. IN THAT CONNECTION, YOU REFER TO B- 172059, JUNE 29, 1971, IN WHICH IT WAS HELD BY OUR OFFICE THAT A PARTIAL ASSIGNMENT OF A CLAIM WAS INVALID AS BETWEEN THE GOVERNMENT AND THE ASSIGNEE BECAUSE THE CONTRACT INVOLVED DID NOT CONTAIN A PROVISION PERMITTING PARTIAL ASSIGNMENTS OF MONEYS DUE OR TO BECOME DUE UNDER THE CONTRACT.

CERTAIN DECISIONS OF THE COURTS ARE REFERRED TO IN YOUR LETTER AS INDICATING THAT THE HOME INDEMNITY COMPANY HAS A VALID CLAIM FOR THE BALANCE REMAINING DUE UNDER THE CONTRACT EXCEPT FOR THE POSSIBILITY THAT A PART OF THE CONTRACT BALANCE WOULD BE AVAILABLE FOR SETOFF AGAINST ADDITIONAL TAX CLAIMS OF THE UNITED STATES IN THE TOTAL AMOUNT OF $40,488.67, PLUS INTEREST.

IN A LETTER DATED NOVEMBER 9, 1971, TO OUR OFFICE, THE CONTRACTOR TAKES EXCEPTION TO YOUR PROPOSAL TO PAY THE BALANCE DUE UNDER THE CONTRACT, LESS THE AMOUNT OF THE GOVERNMENT'S TAX CLAIMS AGAINST THE CONTRACTOR, TO THE HOME INDEMNITY COMPANY. THE CONTRACTOR CONTENDS THAT THE ASSIGNMENT TO THE BANK OF NEW MEXICO IS TOTAL AND STILL BINDING, NOTWITHSTANDING THE FACT THAT THE BANK HAS BEEN PAID MORE THAN THE SUM OF $175,000. THE CONTRACTOR ALSO CONTENDS THAT THE VALIDITY OF MOST OF THE CLAIMS OF SUBCONTRACTORS AND MATERIALMEN AGAINST THE CONTRACTOR AND THE SURETY HAS NOT BEEN ESTABLISHED; AND STATES THAT ITS CLAIM FOR $100,000 IS AGAINST THE UNITED STATES, THAT IT IS NOT A CLAIM UNDER THE PAYMENT BOND AND THAT IT COULD NOT POSSIBLY EXPOSE THE SURETY IN ANY DIRECTION.

A LETTER OF NOVEMBER 19, 1971, FROM ATTORNEYS FOR THE ASSIGNEE BANK ASSERTS THAT THE ASSIGNMENT IS STILL IN EFFECT AND THAT THE CONTRACTOR STILL OWES THE BANK A SUBSTANTIAL SUM OF MONEY.

SO FAR AS THE ASSIGNMENT TO THE BANK OF NEW MEXICO IS CONCERNED, THE FACTS OF THE CASE MAY BE DISTINGUISHABLE FROM THOSE CONSIDERED IN B 172059, SUPRA. A PARTIAL ASSIGNMENT WAS INVOLVED IN THE CASE OF B 172059, WHEREAS, IN THIS CASE, A TOTAL ASSIGNMENT OF THE REMAINING CONTRACT MONIES WAS MADE TO THE BANK OF NEW MEXICO TO SECURE COMMERCIAL LENDINGS IN THE TOTAL AMOUNT OF $175,000. THE FACT THAT A SUM EQUAL TO THE ORIGINAL DEBT HAS BEEN PAID TO THE ASSIGNEE BANK DOES NOT NECESSARILY MEAN THAT THE ASSIGNEE HAS NO PRESENT CLAIM PROTECTED BY THE ASSIGNMENT AGAINST THE CONTRACTOR.

IN REGARD TO THE TAX CLAIMS TOTALING $40,488.67 PLUS INTEREST, EVEN IF THE TAX CLAIMS AROSE INDEPENDENTLY OF THE CONTRACT, IT IS WELL SETTLED THAT THE GOVERNMENT'S RIGHT OF SETOFF WITH RESPECT TO AN UNPAID CONTRACT BALANCE IS SUPERIOR TO THAT OF A SURETY WHOSE CLAIM IS BASED UPON PAYMENTS TO LABORERS AND MATERIALMEN UNDER THE CONTRACT PAYMENT BOND. SEE SECURITY INSURANCE CO. V UNITED STATES, 192 CT. CL. 754, 428 F.2D 838 (1970).

ACCORDINGLY, THE FULL AMOUNT OF THE GOVERNMENT'S TAX CLAIMS, PLUS INTEREST, SHOULD BE SET OFF AGAINST THE AMOUNT OF $126,506.70, DETERMINED AS THE BALANCE DUE UNDER THE CONTRACT.

WITH RESPECT TO THE REMAINDER, UNLESS THE CONTRACTOR, THE ASSIGNEE BANK AND THE SURETY SETTLE THEIR DIFFERENCES BY MUTUAL AGREEMENT, THE AMOUNT DUE UNDER THE CONTRACT AFTER THE GOVERNMENT'S TAX CLAIMS HAVE BEEN SET OFF MUST BE WITHHELD PENDING A JUDICIAL DETERMINATION OF THE RIGHTS OF THE PARTIES IN SUCH PROCEEDINGS AS THEY, OR ANY OF THEM MAY CHOOSE TO INSTITUTE.

GAO Contacts

Office of Public Affairs