The Heard Act, 40 U.S.C. § 270, requires that, to secure the
performance of a government construction contract and payment for
labor and material furnished by subcontractors, the contractor
Page 291 U. S. 477
shall furnish a bond, and provides that, if no suit is brought
by the United States within six months from "the completion and
final settlement" of the contract, a subcontractor may sue on the
bond, provided the action be commenced within one year after "the
performance and final settlement" of the contract, and not
later.
Held:
1. That, where the administrative officer having the work in
charge (in this case, the Secretary of the Interior) has found that
the contract has been performed and has stated the amount due the
contractor, and approved his claim therefor, this is "final
settlement" within the meaning of the statute, although the
officer, instead of ordering payment, refer the claim "for direct
settlement" to the General Accounting Office. P.
291 U. S.
481.
2. Under the Budget and Accounting Act, the function of the
General Accounting Office in auditing and settling claims against
the Government is the same as that which, before the Act, was
exercised by the Accounting Office in the Treasury Department. P.
291 U. S.
479.
3. A construction of the Heard Act as not fixing the time of
"final settlement" by the final settlement in the department having
charge of the contract, but as subjecting it to change by
subsequent action of the Comptroller General, would be out of
harmony with administrative practice, inconvenient of operation,
and inconsistent with the obvious purpose of the statute to protect
the interests of laborers and materialmen. P.
291 U. S.
483.
66 F.2d 302 reversed.
Certiorari, 290 U.S. 618, to review a judgment which reversed a
judgment for the Globe Indemnity Company in an action against it as
surety on a bond securing a construction contract with the United
States. The bond was given under the Heard Act, and the plaintiff
relied on its provisions securing claims for material and
labor.
Page 291 U. S. 478
MR. JUSTICE STONE delivered the opinion of the Court.
Respondent brought this suit in the District Court for Eastern
Pennsylvania to recover on a bond given by petitioner, as surety,
to secure the performance of a government construction contract as
provided by the Heard Act, which requires the contractor to furnish
a surety bond to the government as obligee, conditioned upon
satisfactory performance of the contract and payment by the
contractor for labor and material furnished by subcontractors for
the construction. Act of August 13, 1894, 28 Stat. 278, as amended.
Act of February 24, 1905, 33 Stat. 811, and March 3, 1911, 36 Stat.
1167. In authorizing suits on the bond, the Heard Act provides:
"If no suit should be brought by the United States within six
months from the completion and final settlement of said contract,
then the person or persons supplying the contractor with labor and
materials shall . . . have a right of action: . . . Provided, That
. . . it . . . shall be commenced within one year after the
performance and final settlement of said contract, and not later. .
. ."
The contract was for materials for use in the construction of an
irrigation project, and was entered into on behalf of the United
States by the Department of the Interior under the provisions of
the Reclamation Act of June 17, 1902, 32 Stat. 388, 389. By letter
of June 16, 1927, the First Assistant Secretary of the Department
of the Interior forwarded the claim of the contractor to the
General Accounting Office "for direct settlement" by a letter which
stated that the contract had been completely performed, and that,
after deducting a stipulated amount as liquidated damage for delay
in performance, the balance due was $8,889.30. The letter
concluded: "The claim has received administrative examination, is
approved for $8,889.30, and I recommend that the amount found due
be paid" from a designated appropriation.
Page 291 U. S. 479
Four months later, on October 26, 1927, the General Accounting
Office issued its formal certificate of settlement confirming the
balance found due by the Department of the Interior. The claim was
paid by the Treasurer of the United States on November 5, 1927.
The defense to the present suit on the bond was that it had been
begun October 17, 1928, more than one year after performance and
final settlement of the contract. The sole question presented is
whether "final settlement," within the meaning of the Heard Act,
was effected by the action of the Interior Department of June 16,
1927, or only by the certificate of the General Accounting Office
of October 26th. Judgment for the petitioner by the District Court
was reversed by the Court of Appeals for the Third Circuit, 66 F.2d
302, which held that the Budget and Accounting Act of 1921, 42
Stat. 23, had transferred the authority to make settlements of such
contracts from the Department of the Interior to the General
Accounting Office, that consequently final settlement did not occur
until the action of the General Accounting Office upon the
contractor's claim, and that the suit brought within a year was in
time. Certiorari was granted to resolve an alleged conflict between
this decision and that in
Consolidated Indemnity &
Insurance Co. v. W. A. Smoot & Co., 57 F.2d 995;
compare Lambert Lumber Co. v. Jones Engineering &
Construction Co., 47 F.2d 74.
The Budget and Accounting Act set up the General Accounting
Office under the direction of the Comptroller General of the United
States. Section 304, 31 U.S.C. § 44, transferred to it the powers
and duties of the Comptroller of the Treasury and of the six
Auditors of the Treasury Department, and authorized the heads and
disbursing officers of executive departments to apply for the
decision of the General Accounting Office upon any question
involving a payment to be made by them, which decision,
Page 291 U. S. 480
it is declared, shall govern such office in passing upon the
account. And, by § 305, it is provided that
"all claims and demands whatever by the Government of the United
States or against it . . . shall be settled and adjusted in the
General Accounting Office."
But none of these duties imposed on the Comptroller General were
new. Like provisions applicable to the Comptroller of the Treasury
or the Auditors of the Treasury Department are found in § 8 of the
Act of July 31, 1894, 28 Stat. 207, and in Rev.Stat. § 236. The
chief change effected by the Budget and Accounting Act was that it
transferred powers lodged with officers of the Treasury Department
to the Comptroller General, and made his office independent of the
executive branch of the government. But the function which he
exercises in auditing and settling claims against the government is
precisely that which was previously exercised by the Accounting
Office in the Treasury Department. Before, as after, the Budget and
Accounting Act, claims against the United States might be paid from
the proper appropriation upon approval of the authorized officer of
the department concerned, without previous settlement or audit by
the accounting office. Before, as after, department heads or
disbursing officers might ask the accounting office to render a
decision upon a question involving payment to be made by them, in
order to protect the disbursing officers and their bondsmen from
liability for a payment unauthorized by law.
*
Page 291 U. S. 481
Prior to the enactment of the Budget and Accounting Act, this
Court had decided
Illinois Surety Co. v. United States to Use
of Peeler, 240 U. S. 214.
There, the Treasury Department had directed that a voucher be
issued for the balance which it found to be due upon a contract
entered into with the department for the construction of a public
building. The Treasury Auditors apparently did not pass upon the
claim before payment. The issue presented was whether suit by a
subcontractor upon a bond given under the Heard Act was premature
when begun six months after the date of the department's
determination, but less than six months after payment. It was held
that it was not; that the term "final settlement" in the Heard Act
was not intended to denote payment, but had been used to describe
an administrative determination of the amount due upon completion
of the contract. Similar determinations made by other departments
before the enactment of the Budget and Accounting Act have
repeatedly been held to constitute final settlement within the
meaning of the Heard Act.
Pederson v. United States for Use of
Washington Iron Works, 253 F. 622;
United States for Use
of R. Haas Electric & Mfg. Co. v. Title Guaranty & Surety
Co., 254 F. 958;
Mandel v. United States to Use of Wharton
& N. R. Co., 4 F.2d 629;
Antrim Lumber Co. v.
Hannan, 18 F.2d 548.
In the light of this history, we cannot say that Congress,
merely by transferring the function previously performed by the
Treasury to the General Accounting Office, intended to disturb this
construction of the statute or to make final administrative
determinations in the executive departments any the less final
settlements within the meaning of the Heard Act than they had been
before.
Consolidated Indemnity & Insurance Co. v. W. A.
Smoot & Co., supra.
Page 291 U. S. 482
Respondent does not directly challenge this conclusion. It does
not assert that the General Accounting Office can alone make a
final settlement of a government contract, or deny that in some
circumstances the authorized officer of the department concerned
may make it, but it insists that, where, as in this case, the
claim, in advance of payment, is referred to the General Accounting
Office, its decision alone is controlling, and is therefore the
final settlement which, under the Heard Act, fixes the period
within which suit by a subcontractor may be brought.
It is true, as respondent points out, that the question thus
raised is different from that involved in the earlier cases, where
payment preceded audit by the accounting office, and from that in
the
Peeler case. The contract in the
Peeler case
was under the administrative control of the Treasury Department,
and, when that case arose and was decided, the power to settle
contracts, now lodged with the Comptroller General, was in the
Treasury Department. Thus, the question presented there was not
whose was the authority to make the final settlement, but at what
stage the decision of the department, authorized to make it, became
final. Here, the question is whether the decision of the
Comptroller General supplanted that of the Department of the
Interior, which concededly would have been a final settlement if
there had been no action by the Comptroller General before payment.
This question must be resolved in view of the purpose sought to be
accomplished by the Heard Act and of the administrative procedure
for the settlement, auditing and payment of claims against the
government.
The Heard Act relates only to bonds given as surety for those
entering into contracts for the construction of public buildings or
works. It serves the dual purpose of securing to the United States
the protection of a surety
Page 291 U. S. 483
bond conditioned upon the performance of the contract, and of
protecting those who furnish labor or material to the contractor by
the further condition that the contractor shall pay for such labor
and material. The statute provides that subcontractors may
intervene in any suit brought on the bond of the government, but,
if the government does not bring suit, it makes the time of
completion and final settlement of the contract the crucial date
for measuring the period within which subcontractors are permitted
to bring suit on the bond.
The policy of the statute to afford protection to the interests
of laborers and materialmen would not be effected unless they were
allowed to bring suit with reasonable promptness after the United
States has determined that it will have no claim on the bond and
unless the date of final settlement which fixes the time within
which suit is permitted could be ascertained with reasonable
certainty and finality. A determination, made and recorded in
accordance with established administrative practice by the
administrative officer or department having the contract in charge,
that the contract has been completed and that the final payment is
due, fulfills these requirements.
See Illinois Surety Co. v.
United States to Use of Peeler, supra. Such was the
determination made here by the Interior Department, which alone was
in possession of the knowledge and data necessary to prompt
decision. The department, in forwarding the claim, made every
determination prerequisite to payment.
See Illinois Surety Co.
v. United States to Use of Peeler, supra; Mandel v. United States,
supra. It declared that the contract had been completely
performed; it stated the balance due after deducting the stipulated
amount for liquidated damages for delay; it declared that the claim
had received administrative examination and
Page 291 U. S. 484
was approved for the balance found due, and it recorded its
findings. Such a determination would be "final settlement" for
purposes of the Heard Act if payment had preceded action by the
Comptroller General.
Consolidated Indemnity & Insurance Co.
v. W. A. Smoot & Co., supra. If, as respondent maintains,
this determination may be supplanted by a subsequent settlement by
the Comptroller General, the subcontractors could never be certain
that the departmental determination would mark the period of
limitation, and suits begun within the statutory period measured
from this determination might have to be discontinued and begun
anew if the departmental head or disbursing officer should later
refer the claim to the Comptroller General. A construction so out
of harmony with administrative practice, so inconvenient in
operation, and so inconsistent with the obvious purpose of the
statute is not to be entertained.
No such consequences either to the government or to
subcontractors can result from treating the departmental settlement
as the final one within the meaning of the Heard Act. There is no
more occasion for delaying suit on the bond because of the
contingency that the departmental determination may not be approved
by the Comptroller General in his auditing of the accounts than
because of the contingency that any administrative determination
may not be approved by the courts.
See Illinois Surety Co. v.
United States to Use of Peeler, supra, 240 U. S. 221;
Consolidated Indemnity & Insurance Co. v. W. A. Smoot &
Co., supra, 57 F.2d 997.
A different question would be presented if the department
concerned declined to settle the claim and referred it to the
General Accounting Office for settlement.
See Lambert Lumber
Co. v. Jones Engineering & Construction Co., supra.
Reversed.
* The history, procedure, and function of the Accounting Office
of the Treasury before 1921 and of the General Accounting Office
are discussed in detail in Smith, The General Accounting Office
(Institute for Government Research, Service Monograph No. 46);
Willoughby, The Legal Status and Functions of the General
Accounting Office (Institute for Government Research, Studies in
Administration). The settlement and adjustment of claims against
the government receive particular treatment in Willoughby, c.
IV.