[Payment of Contract Retainages to Subcontractors]

The Coast Guard requested an advance decision on whether three subcontractors may be paid contract retainages when it appears that the prime contractor is unable to meet its obligations under the payment bond. GAO held that: (1) the settlement of obligations between a prime contractor and its subcontractors does not involve the government; (2) although there is no direct contractual relationship between the government and the subcontractors, the government has an obligation to see that the subcontractors are paid; and (3) it is impossible to determine the subcontractors' respective rights when the prime contractor refuses to indicate whether or not it has met its payment bond obligations. Accordingly, the government should make contract retainage payments to subcontractors only when a court of competent jurisdiction determines the respective rights of all of the parties.