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B-221519 1 (1986-07-01)

handle is hein.gao/gaobadmiz0001 and id is 1 raw text is: THECOPT~OLERGENERAL DECISION . . OF THE UNITEO STATES WASHINGTON, D.C. 20548 FILE: B-221519 DATE: July 1, 1986 MATTER OF: Payment to the Fidelity and Deposit Company of Maryland DIGEST: Consistent with Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136-37 (1962), the surety has priority over trustee in bankruptcy to contract retainage funds held by agency where funds never became the property of the contractor. A contracting officer with the United States Department of the Interior, Bureau of Indian Affairs (BIA), asks whether it is proper to pay the contract surety, Fidelity and Deposit Company of Maryland, or the trustee in bankruptcy, $197,600 representing monies remaining to be paid out on a contract between the BIA and L.R. Foy Construction Co., Inc. For the reasons given below, we find that the surety should be paid the $197,600. BACKGROUND The record shows that L.R. Foy Construction Co., Inc. contracted with the BIA to construct a middle school located on the Navajo Indian Reservation in Rough Rock, Arizona. The contract was entered into on September 29, 1982 for a price of $3,083,318. The Fidelity and Deposit Co. of Maryland executed performance and payment bonds on October 11, 1982. Under the terms of the contract, the United States was authorized to retain and hold 10 percent of the estimated contract amount until final completion and acceptance of the contract work. The contractor did complete the work. Prior to the Gov- ernment making final payment, however, the contractor filed a chapter 11 petition for bankruptcy in the United States Bank- ruptcy Court for the District of Kansas. In re L.R. Foy Con- struction Co., Inc., Case No. 85-40798 (D. Kan. July 18, 1985). The agency indicates that there remains a total of 4

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