539. Surety companies; penalties for noncompliance with law. That any company doing business under the provisions of this Act which shall fail to comply with any of its provisions shall forfeit to the United States for every such failure not less than five hundred dollars nor more than five thousand dollars, to be recovered by the suit in the name of the United States in the same courts in which suit may be brought against such company under the provisions of this Act, and such failure shall not affect the validity of any contract entered into by such company. Sec. 8, act of Aug. 13, 1894 (28 Stat. 280); 6 U. S. C. 13.

540. Bonds or notes of the United States in lieu of surety.-When used in this Act, the term "person" means an individual, a trust or estate, a partnership, or a corporation.

The term "Secretary" means the Secretary of the Treasury. Sec. 2, act of June 2, 1924 (43 Stat. 253); sec. 2, act of Feb. 26, 1926 (44 Stat. 9); 6 U. S. C.

15.

Wherever by the laws of the United States or regulations made pursuant thereto, any person is required to furnish any recognizance, stipulation, bond, guaranty, or undertaking, hereinafter called "penal bond," with surety or sureties, such person may, in lieu of such surety or sureties, deposit as security with the official having authority to approve such penal bond, United States Liberty bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of such penal bond required to be furnished, together with an agreement authorizing such official to collect or sell such bonds or notes so deposited in case of any default in the performance of any of the conditions or stipulations of such penal bond. The acceptance of such United States bonds or notes in lieu of surety or sureties required by law shall have the same force and effect as individual or corporate sureties, or certified checks, bank drafts, post-office money orders, or cash, for the penalty or amount of such penal bond. The bonds or notes deposited hereunder and such other United States bonds or notes as may be substituted therefor from time to time as such security, may be deposited with the Treasury of the United States, a Federal reserve bank, or other depositary duly designated for that purpose by the Secretary, which shall issue receipt therefor, describing such bonds or notes so deposited. As soon as security for the performance of such penal bond is no longer necessary, such bonds or notes so deposited shall be returned to the depositor: Provided, That in case a person or persons supplying a contractor with labor or material as provided by the Act of Congress, approved February 24, 1905 (33 Stat. 811), entitled "An Act to amend an Act approved August thirteenth, eighteen hundred and ninety-four, entitled 'An Act for the protection of persons furnishing materials and labor for the construction of public works,'" shall file with the obligee, at any time after a default in the performance of any contract subject to said Acts, the application and affidavit therein provided, the obligee shall not deliver to the obligor the deposited bonds or notes nor any surplus proceeds thereof until the expiration of the time limited by said Acts for the institution of suit by such person or persons, and, in case suit shall be instituted within such time, shall hold said bonds or notes or proceeds subject to the order of the court having jurisdiction thereof: Provided further, That nothing herein contained shall affect or impair the priority of the claim of the United States against the bonds or notes deposited or any right or remedy granted by said acts or by this section to the United States for default upon any obligation of said penal bond: Provided further, That all laws inconsistent with this section are hereby so modified as to conform to the provisions hereof: And provided further, That

nothing contained herein shall affect the authority of courts over the security where such bonds are taken as security in judicial proceedings, or the authority of any administrative officer of the United States to receive United States bonds for security in cases authorized by existing laws. The Secretary may prescribe rules and regulations necessary and proper for carrying this section into effect. In order to avoid the frequent substitution of securities such rules and regulations may limit the effect of this section, in appropriate classes of cases, to bonds and notes of the United States maturing more than a year after the date of deposit of such bonds as security. The phrase "bonds or notes of the United States" shall be deemed, for the purposes of this section, to mean any public-debt obligations of the United States and any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States. Sec. 1029, act of June 2, 1924 (43 Stat. 349); sec. 1126, act of Feb. 26, 1926 (44 Stat. 122); sec. 7, act of Feb. 4, 1935 (49 Stat. 22); 6 U. S. C. 15.

541. Bidders' bonds. And he may require every bid to be accompanied by a written guaranty, signed by one or more responsible persons, to the effect that he or they undertake that the bidder, if his bid is accepted, will, at such time as may be prescribed by the Secretary of War, or the officer authorized to make a contract in the premises, give bond, with good and sufficient sureties. to furnish the supplies proposed or to perform the service required. If after the acceptance of a bid and a notification thereof to the bidder he fails within the time prescribed by the Secretary of War or other duly authorized officer to enter into a contract and furnish a bond with good and sufficient security for the proper fulfillment of its terms, the Secretary or other authorized officer shall proceed to contract with some other person to furnish the supplies or perform the service required, and shall forthwith cause the difference between the amount specified by the bidder in default in the proposal and the amount for which he may have contracted with another party to furnish the supplies or perform the service for the whole period of the proposal to be charged up against the bidder and his guarantor or guarantors, and the sum may be immediately recovered by the United States for the use of the War Department in an action of debt against either or all of such persons. Act of Apr. 10, 1878 (20 Stat. 36); act of Mar. 3, 1883 (22 Stat. 487); 5 U. S. C. 218.

542. Bonds of contractors.-That (a) before any contract, exceeding $2,000 in amount, for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, which shall become binding upon the award of the contract to such person, who is hereinafter designated as "contractor":

(1) A performance bond with a surety or sureties satisfactory to the officer awarding such contract, and in such amount as he shall deem adequate, for the protection of the United States.

(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of each such person. Whenever the total amount payable by the terms of the contract shall be not more than $1,000,000 the said payment bond shall be in a sum of one-half the total amount payable by the terms of the contract. Whenever the total amount payable by the terms of the contract shall be more than $1,000,000 and not more than $5,000,000, the said payment bond shall be in a sum of 40 per centum of

the total amount payable by the terms of the contract. Whenever the total amount payable by the terms of the contract shall be more than $5,000,000 the said payment bond shall be in the sum of $2,500,000.

(b) The contracting officer in respect of any contract is authorized to waive the requirement of a performance bond and payment bond for so much of the work under such contract as is to be performed in a foreign country if he finds that it is impracticable for the contractor to furnish such bonds.

(c) Nothing in this section shall be construed to limit the authority of any contracting officer to require a performance bond or other security in addition to those, or in cases other than the cases specified in subsection (a) of this section. Sec. 1, act of Aug. 24, 1935 (49 Stat. 793); 40 U. S. C. 270a.

(a) Every person who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond is furnished under this Act and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done or performed by him or material was furnished or supplied by him for which such claim is made, shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him: Provided, however, That any person having direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor furnishing said payment bond shall have a right of action upon the said payment bond upon giving written notice to said contractor within ninety days from the date on which such person did or performed the last of the labor or furnished or supplied the last of the material for which such claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. Such notice shall be served by mailing the same by registered mail, postage prepaid, in an envelop addressed to the contractor at any place he maintains an office or conducts his business, or his residence, or in any manner in which the United States marshal of the district in which the public improvement is situated is authorized by law to serve

summons.

(b) Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere, irrespective of the amount in controversy in such suit, but no such suit shall be commenced after the expiration of one year after the date of final settlement of such contract. The United States shall not be liable for the payment of any costs or expenses of any such suit. Sec. 2, act of Aug. 24. 1935 (49 Stat. 794); 40 U. S. C. 2706.

The Comptroller General is authorized and directed to furnish, to any person making application therefor who submits an affidavit that he has supplied labor or materials for such work and payment therefor has not been made or that he is being sued on any such bond, a certified copy of such bond and the contract for which it was given, which copy shall be prima facie evidence of the contents, execution, and delivery of the original, and, in case final settlement of such contract has been made, a certified statement of the date of such settlement, which shall be conclusive as to such date upon the parties. Applicants shall pay for such certified copies and certified statements such fees as the Comptroller General fixes to cover the cost of preparation thereof. Sec. 3, act of Aug. 24, 1935 (49 Stat. 794) ; 40 U. S. C. 270c.

The term "person" and the masculine pronoun as used throughout this Act shall include all persons whether individuals, associations, copartnerships, or corporations. Sec. 4, act of Aug. 24, 1935 (49 Stat. 794); 40 U. S. C. 270d.

This act shall take effect upon the expiration of sixty days after the date of its enactment, but shall not apply to any contract awarded pursuant to any invitation for bids issued on or before the date it takes effect, or to any persons or bonds in respect of any such contract. The Act entitled "An Act for the protection of persons furnishing materials and labor for the construction of public works," approved August 13, 1894, as amended (U. S. C., title 40, sec. 270), is repealed, except that such Act shall remain in force with respect to contracts for which invitations for bids have been issued on or before the date this Act takes effect, and to persons or bonds in respect of such contracts. Sec. 5, act of Aug. 24, 1935 (49 Stat. 794); 40 U. S. C. 270a-270d.

The 1929 text of this section was specifically repealed by section 6, supra. matter is covered by the above provisions.

The subject

A similar statute applicable to contracts with the District of Columbia for public buildings or other public works was enacted July 7, 1932 (47 Stat. 608).

Notes of Decisions

Beneficiaries of statute.-Those furnishing labor and materials to subcontractors for Government work are protected by bond given by contractors securing payments of persons supplying labor and materials in prosecution of work. Trimount Dredging Co., et al., | v. U. S. Fidelity & Guaranty Co. (Md., 1934), 171 A. 700.

Statute giving person supplying labor or materials action on Government contractor's bond should be liberally construed to protect| such person. Equitable Casualty & Surety Co. et al. v. Helena Wholesale Grocery Co. (C. C. A., 1932), 60 F. (2d) 380.

A bond given to the United States, pursuant to U. S. C. 40: 270, for the faithful performance of a construction contract and for the making of prompt payment to all persons supplying the principal with labor and materials in the prosecution of the work, inures to the laborers and materialmen as obligees, together with the United States, though the claims of the Government have priority. American Surety Co. v. Westinghouse Electric Manufacturing Co. (1935), 296 U. S. 133 (affirming (C. C. A., 1935), 75 F. (2d) 377).

Government contractor suing for use of laborers and materialmen whom subcontractor did not pay, could not recover against surety on subcontractor's bond, where contractor, though it inserted in its contract and bond to Government required clause for payment of labor and materials, did not repeat clause in subcontract and subcontractor's bond. Trimount Dredging Co. et al. v. U. S. Fidelity & Guaranty Co. (Md., 1934), 171 A. 700.

Undertaking of surety on subcontractor's bond is confined to terms of its contract, and is not amplified by equitable rights against its principal extraneous to such contract. Id.

for payment of labor and material claims, these are not protected even though there be statute requiring their protection. Id.

Persons furnishing materials for construction of Government buildings are protected by contractor's statutory bond, though materials were supplied to subcontractor and bond expressly covers only materials furnished contractor (Heard Act, 40 U. S. C. A.. sec. 270). U. S. v. James Baird Co. (App. D. C., 1934), 73 F. (2d) 652.

Where contract with government for construction of post office building required payment of prevailing wage scale and contractors agreed to pay such wage regardless of contractual relationship between contractor and laborer, subcontractor who agreed to do electrical work for fixed price held entitled to recover prevailing wage for work which he performed himself (Heard Act. 40 U. S. C. A.. sec. 270). U. S. ex rel. Southern G-F Co. v. Landis & Young (D. C., 1935), 16 F. Supp. 832.

Contracts within the statute.-Contract for clearing, dredging, and construction in connection with Marine Corps flying field, held within statute providing contractors for public work should execute bond that contractors should pay persons supplying labor and materials. Trimount Dredging Co. et al. v. U. S. Fidelity & Guaranty Co. (Md., 1934), 171 A. 700.

Test of "public work" within statute requiring contractor for public work of United States to furnish bond for payment of materialmen is whether the work during its progress belonged to a representative of the public, though it need not be attached to the soil (Heard Act, 40 U. S. C. A. 270). U. S. v. Metropolitan Body Co. (C. C. A., 1935), 79 F. (2d) 177.

Under statute requiring person contracting with United States for construction of "pub

Where neither contract nor bond provides lic buildings" or completion of "public

works," to execute bond conditioned that con- | considered replacements rather than consumtractor should make prompt payment to all persons supplying him with labor and materials, "public buildings" and "public works" mean buildings or works of United States, precluding liability on bond where United States did not own building (Heard Act, U. S. C. 40:270). Maiatico Const. Co. v. U. S. (App. D. C., 1935), 79 F. (2d) 418; certiorari denied (1935), 296 U. S. 649.

Action was premature, since nothing had Words "labor and materials in the prose-been done to indicate that Government would cution of the work," used to define coverage of Government contractor's bond, should be given liberal construction (40 U. S. C. A. sec 270). Mass. Bonding & Ins. Co. v. U. S. (C. C. A., 1937), 88 F. (2d) 388.