B-159285, JUN. 17, 1966

B-159285, JUN. 17, 1966

TO FEDERAL HIGHWAY ADMINISTRATOR, BUREAU OF PUBLIC ROADS, DEPARTMENT OF COMMERCE:

REFERENCE IS MADE TO A COPY OF A LETTER DATED FEBRUARY 15, 1966, AND ENCLOSURES, FROM B. M. FRENCH, CONTRACTING OFFICER, PORTLAND, OREGON, REQUESTING OUR ADVICE AND INSTRUCTIONS AS TO THE PARTY TO WHOM FINAL PAYMENT UNDER CONTRACT NO. CPR 8-1365 SHOULD BE MADE.

THE SUBJECT CONTRACT WAS AWARDED TO WESTERN STATES LEASING COMPANY ON MAY 4, 1964, FOR CONSTRUCTION OF OREGON FOREST HIGHWAY PROJECT 33 2/1),PENDLETON-JOHN DAY HIGHWAY, IN THE ESTIMATED TOTAL AMOUNT OF $370,323.50, AT UNIT PRICE RATES FIXED BY THE CONTRACT. PERFORMANCE AND PAYMENT BONDS, EACH IN THE AMOUNT OF $185,161.75, WERE FURNISHED BY THE OREGON AUTOMOBILE INSURANCE COMPANY. ON SEPTEMBER 23, 1964, THE CONTRACTOR ASSIGNED ALL THE MONEYS DUE OR TO BECOME DUE UNDER THE CONTRACT TO THE FIRST NATIONAL BANK OF PORTLAND PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203. THE CONTRACTOR WAS DECLARED IN DEFAULT ON JUNE 9, 1965, AND ITS RIGHT TO PROCEED WITH THE WORK THEREUNDER WAS TERMINATED. BY LETTER OF THE SAME DATE THE SURETY WAS FURNISHED A COPY OF THE TERMINATION NOTICE, AND ADVISED AS FOLLOWS:

"* * * IN SITUATIONS OF THIS KIND, IT IS THE PRACTICE OF THE BUREAU OF PUBLIC ROADS TO PERMIT THE SURETY, IF IT SO DESIRES, TO COMPLETE THE UNFINISHED WORK WITH A CONTRACTOR OF ITS CHOICE, SUBJECT TO THE CONDITION THAT THE QUALIFICATIONS OF SUCH CONTRACTOR ARE ACCEPTABLE TO THE GOVERNMENT. IN SUCH EVENT PAYMENT FOR WORK PERFORMED FROM THE DATE OF DEFAULT TO THE DATE OF COMPLETION WILL BE MADE TO THE SURETY AT THE UNIT PRICES SET FORTH IN THE CONTRACT, AND THE SURETY WILL BE RECOGNIZED AS OCCUPYING THE SAME POSITION AS THE ORIGINAL CONTRACTOR IN COMPLETING THE WORK.

"IT IS UNDERSTOOD THAT SUCH ARRANGEMENT IS SIMPLY TO PERMIT THE SURETY TO COMPLETE THE WORK UNDER SAID CONTRACT AND WILL IN NO WAY CHANGE OR ALTER THE CONDITIONS OF THE CONTRACT PERFORMANCE AND PAYMENT BONDS. NO FURTHER PAYMENTS WILL BE MADE WITH RESPECT TO EARNINGS BY THE DEFAULTED CONTRACTOR PRIOR TO THE DATE OF DEFAULT UNTIL THE PROJECT IS COMPLETED AND THE AMOUNT OF ANY EXCESS COSTS OCCASIONED TO THE GOVERNMENT BY REASON THEREOF HAS BEEN DETERMINED.'

UNDER DATE OF JUNE 17, 1965, THE SURETY, THROUGH ITS ATTORNEY, FORMALLY ADVISED THE CONTRACTING ACTIVITY THAT IT DESIRED TO COMPLETE THE WORK CALLED FOR UNDER THE CONTRACT, CONFIRMING VERBAL ADVICE TO THAT EFFECT SAID TO HAVE BEEN GIVEN AT A MEETING ON JUNE 11. THE WORK WAS PERFORMED BY THE SURETY'S CONTRACTOR AND ACCEPTED BY THE GOVERNMENT ON SEPTEMBER 14, 1965. THE SURETY WAS PAID ON THE BASIS OF UNIT PRICES FIXED BY THE CONTRACT, THE SUM OF $159,454.96 FOR THE COMPLETION WORK, AND PAID ITS CONTRACTOR A TOTAL OF $180,200.40 IN EXCESS THEREOF. IN ADDITION, THE RECORD INDICATES THAT THE SURETY PAID $129,271.57 TO PERSONS WHO HAD NOT BEEN PAID BY WESTERN STATES FOR LABOR AND MATERIAL FURNISHED TO IT PRIOR TO DEFAULT.

THERE REMAINS UNPAID BY THE GOVERNMENT A BALANCE OF $38,530.03 REPRESENTING EARNINGS BY THE CONTRACTOR PRIOR TO DEFAULT AFTER DEDUCTION OF LIQUIDATED DAMAGES ASSESSED UNDER THE CONTRACT FOR DELAY, AND TAXES PAID TO THE INTERNAL REVENUE SERVICE ON A LEVY AGAINST THE CONTRACTOR.

THE FILE SUBMITTED BY THE CONTRACTING OFFICER INDICATES THAT THE GOVERNMENT HAS NO INTEREST IN THE AMOUNT EARNED BY THE CONTRACTOR AND REMAINING UNPAID, AND IS MERELY A STAKEHOLDER THEREOF. IN A LETTER DATED JANUARY 26, 1966, THE ASSIGNEE BANK ACKNOWLEDGED SATISFACTION OF THE CONTRACTOR'S OBLIGATION TO IT AND THAT IT HAS NO CLAIM AGAINST ANY MONEYS DUE UNDER THE CONTRACT. THE SURETY HAS PRESENTED ITS CLAIM FOR THE BALANCE BY VIRTUE OF ITS RIGHTS OF SUBROGATION.

IN THESE CIRCUMSTANCES, IT IS THE POSITION OF OUR OFFICE THAT IN THE ABSENCE OF ANY CLAIM BY THE GOVERNMENT AGAINST THE CONTRACTOR THE COMPLETING SURETY IS ENTITLED TO THE FUNDS UNPAID AND STILL OWING BY THE GOVERNMENT TO THE PRINCIPAL UNDER THE CONTRACT, TO THE EXTENT OF THE SURETY'S ACTUAL COST OF COMPLETION OF THE CONTRACT, EXCLUSIVE OF ANY EXPENDITURES UNDER THE PAYMENT BOND. B-157625, SEPTEMBER 17, 1965; SEE ALSO, 31 COMP. GEN. 103, 108; 40 ID. 85, 888. SINCE IN THIS CASE THE COSTS OF COMPLETION EXCEED THE MONEY IN THE HANDS OF THE GOVERNMENT, THE $38,530.03 MAY PROPERLY BE PAID TO THE SURETY. A COPY OF THIS DECISION SHOULD BE ATTACHED TO THE VOUCHER.