PIONEER STEEL ERECTORS, INC. vs. COMMONWEALTH (and a companion case ).

PIONEER STEEL ERECTORS, INC. vs. COMMONWEALTH (and a companion case [Note p195-1]).

344 Mass. 195

February 8, 1962 - April 12, 1962

Suffolk County

Present: WILKINS, C.J., SPALDING, WHITTEMORE, CUTTER, & KIRK, JJ.

The provision which, among others, is required by G. L. c. 30, Section 39F, as appearing in St. 1956, c. 677, Section 1, to be included in contracts with the Commonwealth for certain public works, that in specified circumstances "the awarding authority shall make, out of sums payable to the general contractor on the general contract, direct payment to . . . [a] subcontractor of the entire balance due on the subcontract," less certain amounts, creates an obligation of the Commonwealth to the subcontractor which is enforceable by him against the Commonwealth by petition under G. L. c. 258.

PETITIONS filed in the Superior Court on May 26, 1961.

The petitioner appealed from orders by Spring, J.

Douglas L. Ley, (James H. Donovan with him,) for the petitioner.

Kevin R. Doyle, Assistant Attorney General, for the respondents.

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WHITTEMORE, J. Pioneer Steel Erectors, Inc. (Pioneer), an unpaid subcontractor on a highway project, petitioned under G. L. c. 258, Sections 1 and 2, to establish a claim against the Commonwealth under G. L. c. 30, Section 39F. [Note p196-1] It also petitioned for a writ of mandamus to require the Commissioners of Public Works to pay it out of sums payable to the principal contractor. A demurrer of the Commonwealth was sustained. The petition for mandamus was dismissed after hearing. At issue is the construction of the provision in G. L. c. 30, Section 39F, which directs that if within ten days after the sixty-fifth day after a subcontractor has fully completed its work it has not received from the general contractor the entire balance due on its subcontract, less specified deductions or retentions, the subcontractor shall give written notice to the awarding authority and the general contractor and that thereupon "the awarding authority shall make, out of sums payable to the general contractor

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on the general contract, direct payment to the subcontractor of the entire balance due on the subcontract less the aforesaid amounts. Such direct payment . . . shall discharge the obligation of the awarding authority to the general contractor to the extent of such payment."

1. The sole contention in the Commonwealth's brief in respect of the petition under G. L. c. 258 is that such obligation as exists under G. L. c. 30, Section 39F, is not of the kind for which by G. L. c. 258 the Commonwealth has consented to be sued.

We disagree. To the extent that Section 39F creates an obligation it is for the payment of money for services performed or materials furnished. This is a claim of the sort which "civilized governments have always recognized." Murdock Parlor Grate Co. v. Commonwealth, 152 Mass. 28 , 31. Nash v. Commonwealth, 174 Mass. 335 , 338-340. George H. Sampson Co. v. Commonwealth, 202 Mass. 326 , 332. Charles I. Hosmer, Inc. v. Commonwealth, 302 Mass. 495 , 498. Arthur A. Johnson Corp. v. Commonwealth, 306 Mass. 347 , 351. Chilton Club v. Commonwealth, 323 Mass. 543 , 545-546. Compare Kennedy v. Commonwealth, 182 Mass. 480 ; Executive Air Serv. Inc. v. Division of Fisheries & Game, 342 Mass. 356 , 359.

The effect of the statute, if obligatory, is to give a subcontractor a direct right such as it would have had under a contract between it and the Commonwealth. See, for a petition under G. L. c. 258 in respect of such a contract, M. DeMatteo Constr. Co. v. Commonwealth, 338 Mass. 568 .

So far as the obligation is unlike an obligation under a direct contract between the Commonwealth and Pioneer, the distinction has been considered and disregarded in the Nash case, supra. There the Commonwealth had funds of the contractor which, under Pub. Sts. c. 16, Section 64, were security for payment of the subcontractor's bill. [Note p197-1] The contract provided that the "Commonwealth may keep any

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moneys which would otherwise be payable hereunder, and apply the same to the payment of . . . all claims . . . notice of which . . . shall have been filed . . . or may . . . apply such moneys thereto." (P. 337.) It was held that the Commonwealth held the retained sums, under the provision of the contract and the statute, as trustee for the subcontractor. "The purpose . . . was to secure the . . . claim, and the Commonwealth . . . is under an implied obligation to hold . . . [the fund] for that purpose." (Pp. 337-338.) This court held in a majority opinion that the claim to the fund was within the scope of c. 195, as amended by St. 1887, c. 246, which statute is the forerunner of G. L. c. 258.

We think that Section 39F created an obligation. The language is mandatory. The "awarding authority shall make . . . [the payment which] shall [pro tanto] discharge . . . [its obligation] to the general contractor." We see no basis for assuming that the legislature was making only a suggestion of good practice. The legislative history tends to show the contrary. [Note p198-1]

The Commonwealth relies on the circumstance that the specified security for the payment of subcontractors is now only a surety bond under G. L. c. 149, Section 29, as appearing in St. 1957, c. 682, Section 1, whereas formerly by c. 30, Section 39 (now repealed), the security was to be by "bond or otherwise." [Note p198-2] It seeks to distinguish the Nash case on this ground. That statutory change does not, however, suggest that c. 30, Section 39F, was to be meaningless. By the change, rights against retained funds were given only under Section 39F, but the language used therein was appropriate to create rights. It is relevant, as the Commonwealth contends, that G. L. c. 30, Section 39, provided that c. 258 should apply to petitions to enforce

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rights in the security taken thereunder, and that there is no comparable provision in the new statutes. This may show legislative awareness that the primary proceeding under G. L. c. 149, Section 29, would always be against the bonding company, and it does suggest that the general court was not giving thought to how the right under G. L. c. 30, Section 39F, would be enforced. It does not, however, negative the intent which we find in Section 39F that it be effective to assure prompt payment to the subcontractor. The Nash case shows that in the absence of an express reference to G. L. c. 258 (or its forerunner), an intent to provide for payment by a State agency from a retained fund creates an obligation for which the Commonwealth may be sued.

The obligation imposed by the statute is not merely, as the Commonwealth contends, to include the substantive provision in every "contract . . . [in respect of certain] public building[s] or public works" as the first sentence of Section 39F makes mandatory. The obligation of the awarding authority to make payments stems from the express mandate of the statute; and the inclusion of the provision in the contract assures the contractual assent of all concerned.

The legislative intent to impose an obligation is suggested by the provision for interest in G. L. c. 30, Section 39K applies to contracts for public buildings only and requires payments to contractors after specified elapsed periods and deductions including "retention for direct payments to subcontractors based on demands . . . [under] section thirty-nine F . . .." "If the awarding authority fails to make payment as herein provided, there shall be added to each such payment daily interest at the rate of five per cent per annum . . .. The contractor agrees to pay to each subcontractor a portion of any such interest paid in accordance with the amount due each subcontractor."

There is also a provision in Section 39G, as amended through St. 1957, c. 360, for the payment of interest on delayed payments to contractors under contracts for public buildings and specified public works.

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It would be anomalous to impose an obligation on the awarding authority to make the specified payment, without recognizing an obligation on the Commonwealth to make good on its failure to do so.

2. The petition for writ of mandamus was rightly dismissed in view of the remedy under G. L. c. 258 (point 1, supra).

3. The order for judgment dismissing the petition for a writ of mandamus is affirmed. The order sustaining the demurrer to the petition under G. L. c. 258 is reversed and an order overruling the demurrer is to be entered in the Superior Court.

So ordered.

FOOTNOTES

[Note p195-1] The companion case is by the same petitioner against Commissioners of Public Works of the Commonwealth.

[Note p196-1] General Laws c. 30, Section 39F (inserted by St. 1954, c. 609, as appearing in St. 1956, c. 677, Section 1) provides in pertinent part as follows: "Every contract for the construction, reconstruction, alteration, remodeling, repair or demolition of any public building or public works by the commonwealth . . . when the amount involved is more than five thousand dollars . . . shall contain the following in its entirety: Within ten days after the general contractor receives payment on account of a periodic estimate of the value of the work done, he shall pay to each subcontractor the sum contained therein for the value of said subcontractor's work, less any amount retained therefrom by the awarding authority under the terms of the general contract or in consequence of any legal proceedings or statutory liens, and less any amount due the general contractor under the subcontract. Not later than the sixty-fifth day after each subcontractor fully completes his portion of the work in accordance with the plans and specifications, the entire balance due under the subcontract shall be due the subcontractor and shall be paid to the general contractor by the awarding authority for the account of the subcontractor and in partial payment of the amount due under the general contract; provided, however, that the awarding authority may withhold from such partial payment all amounts retained by the awarding authority pending its determination that said portion of the work is satisfactory or in consequence of any legal proceedings or statutory liens. The general contractor shall forthwith pay to the subcontractor the full amount received as aforesaid from the awarding authority for the account of such subcontractor less any amount due the general contractor under the subcontract; and the awarding authority may take such steps as it may deem necessary to arrange that such amounts are paid by the general contractor to the subcontractor forthwith. If, within ten days after the aforementioned sixty-fifth day, the subcontractor has not received from the general contractor the entire balance due on the subcontract less the aforesaid amounts, the sub-contractor shall give the awarding authority and the general contractor written notice of such failure to receive payment and of the amount so payable, but not paid, by the general contractor. Thereupon . . . [here follow the two sentences quoted in the text of the opinion]."

[Note p197-1] The statute required the contracting officers to "obtain sufficient security, by bond or otherwise, for payment by the contractor and by all sub-contractors for all labor performed or furnished, and for all materials used in such construction . . .."

[Note p198-1] Proposed bills in 1954 (House 1570, House 1572, House 2528, Senate 516) either had permissive language ("may make . . . payment") or (No. 2528) omitted any such provision. Senate 778 and House 2602, as reported, included the mandatory language of the enactment (House 2602 as amended).

[Note p198-2] St. 1955, c. 702, Section 1, deleted the words "or otherwise" from c. 30, Section 39, which was repealed by St. 1957, c. 682, Section 2.