B-164881, AUG. 14, 1968

B-164881, AUG. 14, 1968

TO MR. SAMUELS:

THIS IS IN REPLY TO YOUR LETTER OF JULY 17, 1968, REQUESTING OUR DECISION ON A MATTER INVOLVING THE APPROPRIATE DISTRIBUTION OF FUNDS IN THE GOVERNMENT'S POSSESSION. THE FUNDS IN QUESTION ARE SAID TO AMOUNT TO APPROXIMATELY $10,000, REPRESENTING THE UNPAID BALANCE ON A CONTRACT, NO. DSA100-67-C-3172, BETWEEN THE DEFENSE SUPPLY AGENCY AND THE HAYDEN MANUFACTURING COMPANY, SELMA, ALABAMA.

ON SEPTEMBER 20, 1965, THE SMALL BUSINESS ADMINISTRATION, IN PARTICIPATION WITH THE CITIZENS BANK AND TRUST CO., MADE A LOAN TO HAYDEN ON WHICH THE PRESENT BALANCE DUE AND UNPAID IS APPROXIMATELY $21,005.03. THE RECORD ESTABLISHES THAT ON MARCH 10, 1967, THE CONTRACTOR ASSIGNED THE PROCEEDS OF ITS DSA CONTRACT PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, TO THE ABOVE NAMED BANK, AND NOTICE OF SUCH ASSIGNMENT WAS ACKNOWLEDGED BY THE COGNIZANT ACCOUNTING AND FINANCE OFFICER UNDER DATE OF MARCH 14, 1967. THE ASSIGNMENT WAS GIVEN "AS COLLATERAL SECURITY FOR THE REPAYMENT OF ALL OBLIGATIONS AND LIABILITIES OF EVERY KIND HERETOFORE OR HEREAFTER INCURRED BY THE ASSIGNOR TO THE ASSIGNEE.' THE PARTICIPATION AGREEMENT EXECUTED IN 1965 BY SBA AND THE BANK PROVIDES THAT ANY COLLATERAL RECEIVED TO SECURE BANK OR SBA WITH RESPECT TO THE LOAN IS TO BE SHARED. BY LETTER OF MAY 9, 1968, TO THE ARMY FINANCE AND ACCOUNTS OFFICE, SBA ASSERTED ITS CLAIM, UNDER ITS RIGHT OF SETOFF, AGAINST THE PROCEEDS OWING UNDER THE CONTRACT.

ON SEPTEMBER 11, 1967, THE DEPARTMENT OF LABOR REPORTED TO THE CONTRACTING AGENCY THAT HAYDEN HAD FAILED TO MEET ITS PAYROLL DURING THE PERFORMANCE OF THE REFERENCED GOVERNMENT CONTRACT FOR APPROXIMATELY TWO AND ONE-HALF WEEKS PRIOR TO AUGUST 22, 1967, AND THAT ITS EMPLOYEES WERE DUE APPROXIMATELY $11,000 FOR WORK ON THE CONTRACT.

UNDER THE PROVISIONS OF THE WALSH-HEALEY ACT OF JUNE 30, 1936, 49 STAT. 2036, 41 U.S.C. 35-45, WHICH ARE FOR CONSIDERATION HERE, THE FAILURE OF THE CONTRACTOR TO PAY STIPULATED MINIMUM WAGES RENDERS SUCH CONTRACTOR LIABLE TO THE UNITED STATES FOR LIQUIDATED DAMAGES AND A SUM EQUAL TO THE AMOUNT OF ANY UNDERPAYMENT OF WAGES DUE TO ANY EMPLOYEE ENGAGED IN THE PERFORMANCE OF SUCH CONTRACT. THE ACT FURTHER PROVIDES FOR WITHHOLDING FROM ANY AMOUNTS DUE UNDER SUCH CONTRACT OF ANY SUMS DUE BY REASON OF VIOLATIONS OF THE STIPULATIONS REQUIRED BY THE ACT. SUCH FUNDS ARE REQUIRED TO BE HELD IN A SPECIAL DEPOSIT ACCOUNT AND, ON ORDER OF THE SECRETARY OF LABOR, TO BE PAID TO THE EMPLOYEES INVOLVED.

SINCE IT APPEARS THAT THE FUNDS IN THE GOVERNMENT'S POSSESSION WOULD BE ENTIRELY EXHAUSTED BY APPLICATION TO EITHER OF THE ABOVE REFERENCED DEBTS, YOU HAVE REQUESTED OUR DECISION AS TO WHICH DEBT SHOULD BE GIVEN PRIORITY.

IN OUR DECISION 19 COMP. GEN. 565 WE HELD THAT WHERE SUMS ARE WITHHELD PURSUANT TO THE PROVISIONS OF THE WALSH-HEALEY ACT FOR THE BENEFIT OF A CONTRACTOR'S EMPLOYEES, IT IS MANDATORY THAT THE FUNDS BE MADE AVAILABLE TO THE SECRETARY OF LABOR FOR PAYMENT TO THE EMPLOYEES ENTITLED THERETO. IN THE PRESENT CASE IT IS CLEAR THAT THE FUNDS IN THE GOVERNMENT'S POSSESSION WERE WITHHELD PURSUANT TO SAID ACT AND, NOTWITHSTANDING THE RIGHT OF PAYMENT AND SETOFF ASSERTED BY SBA, WE ARE OF THE OPINION THAT SUCH FUNDS MUST BE MADE AVAILABLE FOR DISTRIBUTION TO THE CONTRACTOR'S EMPLOYEES BY THE SECRETARY OF LABOR. THE RIGHTS ASSERTED BY SBA TO PAYMENT BY VIRTUE OF THE ABOVE MENTIONED ASSIGNMENT AND PARTICIPATION AGREEMENT ARE NO GREATER THAN THOSE OF THE BANK'S ASSIGNOR, THE CONTRACTOR. MODERN INDUSTRIAL BANK V UNITED STATES, 101 CT. CL. 808. SINCE UNDER THE PROVISIONS OF THE WALSH HEALEY ACT THE RIGHT OF THE CONTRACTOR TO PAYMENT UNDER THE CONTRACT IS SUBORDINATE TO THE GOVERNMENT'S RIGHT TO WITHHOLD WAGE UNDERPAYMENTS, THERE IS IN THIS CASE NO AMOUNT DUE THE CONTRACTOR TO WHICH THE ASSIGNMENT CAN APPLY OR WHICH COULD BE APPLIED BY SETOFF TO THE CONTRACTOR'S INDEBTEDNESS TO YOUR AGENCY.

WE ARE FORWARDING COPIES OF THIS DECISION TO THE SECRETARY OF LABOR AND TO THE DIRECTOR, DEFENSE SUPPLY AGENCY.