[Letter]

B-230871.4 Jun 19, 1996 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights Defaults by individual sureties will occur from time to time. Remedial legislation is the appropriate vehicle for correcting recurrent problems such as defaulted sureties. Which provides that surety bonds are the sole source of funds for subcontractor payment claims. These firms were subcontractors of Continental Construction Corporation (CCC) under National Aeronautics and Space Administration (NASA) contract No. The claimants are among a number of CCC's subcontractors who remained unpaid when NASA terminated the contract with CCC for default on March 2. The subcontractors and NASA were left without recourse to recover their losses. CCC was the low bidder on the test facility construction contract. View Decision B-230871.4 June 19, 1996 Claimants, subcontractors on defaulted construction contract, suffered a loss when the prime contractor's individual sureties also defaulted on Miller Act payment bonds. Claimants' request referral of their claims to Congress for payment under the Meritorious Claims Act. We decline to refer the claims. Defaults by individual sureties will occur from time to time. Remedial legislation is the appropriate vehicle for correcting recurrent problems such as defaulted sureties. Repeated referrals of subcontractors' claims would establish a policy that contravenes the Miller Act, which provides that surety bonds are the sole source of funds for subcontractor payment claims. See statutes and decisions cited. Mr. Brad J. Hutchinson 18386 Carob Street Hesperia, California 92345 Dear Mr. Hutchinson: This responds to your request on behalf of Mark Steel Corporation, Fire Engineering Co., Inc., Insulated Building Products, Inc., J.W. Thompson Co., Peterson & Associates, Inc., and Data Air, Inc., that our Office consider referring their claims to the Congress under the Meritorious Claims Act, 31 U.S.C. sec. 3702(d). These firms were subcontractors of Continental Construction Corporation (CCC) under National Aeronautics and Space Administration (NASA) contract No. NAS2-12863 for the construction of a 112,000 square foot aircraft testing facility at NASA's Dryden Flight Research Center in Edwards, California. The claimants are among a number of CCC's subcontractors who remained unpaid when NASA terminated the contract with CCC for default on March 2, 1989. Some weeks later, when CCC's performance and payment sureties also defaulted on their obligations, the subcontractors and NASA were left without recourse to recover their losses. A report issued on February 22, 1991, by NASA's Office of Inspector General (IG) recounted the many problems NASA experienced with the contract, highlighting in particular problems with the sureties. Citing the IG report and the Meritorious Claims Act you request that we recommend to the Congress that the firms be fully compensated. For the reasons set forth below, we cannot make such a recommendation. Facts At $16,184,800, CCC was the low bidder on the test facility construction contract. NASA conducted a preaward survey of CCC and found it to be responsible. The preaward survey uncovered the problems that later plagued the contract: CCC's inexperience and cash flow. However, in the judgment of the contracting officer, these problems were not sufficient at the time of the survey to affect the firm's overall responsibility. [1] The contract was awarded on October 23, 1987. CCC offered individual sureties for the performance and payment bonds mandated by the Miller Act, 40 U.S.C. sec. 270a. As required by the regulations in effect at the time, each surety submitted a sworn statement listing the property offered as security for the obligations. See Federal Acquisition Regulation (FAR) sec. 28.202-2 (1987). In addition, those statements were certified by bank officers who stated that they had personal knowledge of the individuals and the assets pledged. NASA reviewed the documentation evidencing the sureties' net worth, but the contracting officer did not independently verify the existence and value of the sureties' property. [2] The contracting officer accepted the sureties offered on the bonds and on November 2, issued CCC a notice to proceed. Between November 1987 and February 1989, CCC completed about half of the project and was paid over $10 million in progress payments. In late February 1989, CCC abandoned the project and advised NASA that it was unable to complete the contract. NASA then terminated the contract for default. Thereafter, one of the performance sureties briefly and unsuccessfully attempted to complete the construction project, but that contract, too, was terminated for default on April 19, 1989. The other surety denied responsibility on June 12.