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March 17, 1987

ATC Petroleum, Inc., et al., Plaintiffs
John C. Sanders, Administrator, Small Business Administration, Defendant; Koch Fuels, Inc., Plaintiff v. John C. Sanders, Administrator, Small Business Administration, Defendant

The opinion of the court was delivered by: GREEN

 These are two actions brought by suppliers of petroleum products who sold petroleum to one Tri-Par Combustion Corporation ("Tri-Par"), a certified participant in the disadvantaged business development program, under the Small Business Act of 1958. 15 U.S.C. §§ 632, 637(a) (1982). Plaintiffs seek to have the Small Business Administration ("SBA") reimburse them for the petroleum that they sold to Tri-Par for which they claim they have not been paid. Tri-Par is not a party to this proceeding. These cases, consolidated by order dated March 25, 1986, are now before the Court on motions for summary judgment. For the reasons set forth below, the Court grants defendant's motion for summary judgment in both cases.

 I. Background

 A basic purpose of the Small Business Act of 1958 ("the Act") is to insure that a fair proportion of the total purchases and the total contracts and subcontracts for property and services of the United States Government be placed with small business enterprises in order to maintain and strengthen the Nation's economy. 15 U.S.C. § 631 (1982); see Baillie Trash Hauling, Inc. v. Kleppe, 477 F.2d 696, 703 (5th Cir. 1973), cert. denied, 415 U.S. 914, 39 L. Ed. 2d 468, 94 S. Ct. 1410 (1974). Consonant with this general purpose, section 8(a) of the Act authorizes the Administrator of the SBA to enter into contracts with other federal departments and agencies to furnish them with articles, supplies, equipment, and for construction. 15 U.S.C. § 637(a)(1) (1982). In turn, the SBA is empowered to arrange for the performance of such procurement contracts by negotiating subcontracts with eligible section 8(a) firms. Eligible section 8(a) firms are defined as small businesses owned by "socially and economically disadvantaged individuals," i.e., persons who have been subjected to prejudice because of their identity as members of a group whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities. 15 U.S.C. § 637(a)(5) and (6) (1982).

 The SBA provides contract, technical, and management support to section 8(a) companies by advising them concerning the operation of their business and the fulfillment of government contract specifications. 15 U.S.C. § 637(b)(1)(A) (1982). The SBA may also make available to section 8(a) firms certain forms of financial support. Until recently, the SBA offered financial assistance under the "advance payment" program. Under that program, the SBA provided interest-free loans to section 8(a) businesses to assist them "in meeting financial requirements" for the performance of section 8(a) government supply contracts. 13 C.F.R. § 124.1-2(a) (1986).

 In order to protect these funds, Congress mandated that such loans be made only after finding "that to [make the loan] would be in the public interest," and if the loan was backed by "adequate security." 41 U.S.C. § 255(c) (1982). The "security" for advance payments is required to be in the form of a "lien in favor of the Government on the property contracted for, on the balance of an account in which such payments are deposited, and such of the property acquired for performance of the contract as the parties may agree." Id. The SBA promulgated regulations to provide safeguards for its advance payment regulations as required by 41 U.S.C. § 255 (1982). See 13 C.F.R. § 124.1-2 (1986).

 Tri-Par was a certified section 8(a) firm whose principal business was the supply of fuel oil to retail customers. Plaintiffs ATC Petroleum, Inc. ("ATC"), Tidewater Fuels, Inc. ("Tidewater"), and Koch Fuels, Inc. ("Koch") were fuel oil suppliers to Tri-Par. The SBA, through its New York City office, entered into various fuel oil supply contracts since before 1976 with United States Government agencies and departments using Tri-Par as the subcontractor. Koch's Exhibits D, E, F. In order to achieve contract fulfillment, the SBA provided Tri-Par with some management advice and advance payments in accordance with the applicable regulations, 13 C.F.R. § 124.1-2 (1986), continuously from 1975 through 1980. Koch's Exhibit G; ATC/Tidewater's Exhibits 21, 32.

 Tri-Par's dealings with Koch date to 1976. In that year, Tri-Par first approached Koch, as a section 8(a) subcontractor to the SBA, to purchase fuel oil for resale to the Department of Defense. Koch reviewed Tri-Par's proposal but declined to do business with Tri-Par as it did not meet Koch's credit requirements.

 Thereafter, the SBA contacted Koch on Tri-Par's behalf. The SBA wrote to Koch that it was advancing funds to Tri-Par, and that these funds would be maintained in a special bank account under SBA control. Koch's Exhibit A. These funds would facilitate Tri-Par's furnishing fuel to various government installations for fiscal year 1977.

 This assurance in hand, Koch sold fuel oil to Tri-Par in 1976, 1977, and 1978. The succeeding section 8(a) contracts that Tri-Par received were each for a term of one year. When Koch appeared reluctant to sell larger quantities of fuel oil to Tri-Par in 1978 and 1979, the SBA extended written and oral assurances to Koch that the SBA advance payment funds remained available under the same terms and conditions as set forth in the SBA's 1976 letter to Koch. Koch's Exhibits A, B, C. Koch, however, had no contractual relationship with the SBA. Koch continued making fuel oil sales to Tri-Par until September 1981, as Tri-Par endeavored to perform successive section 8(a) subcontracts from the SBA.

 On September 29, 1980, the SBA entered into an indefinite quantity requirement type contract with the Defense Fuel Supply Center ("DFSC") for delivery of fuel oil to various military installations. On the same day, the SBA awarded another section 8(a) subcontract to Tri-Par, so that Tri-Par could supply the DFSC under the SBA's contract. ("September 1980 contract"). This contract obligated Tri-Par to supply approximately $ 10.8 million worth of fuel oil for fiscal year 1981. Tri-Par, in turn, contracted with Koch to supply it with the necessary fuel oil in order that Tri-Par could satisfy the September 1980 contract.

 Tri-Par's financial situation weakened soon after it entered into the September 1980 contract. Unable to secure financing from a private lender, Tri-Par requested the SBA to provide it with advance payment assistance. ATC/Tidewater's Exhibits 12, 13. The SBA agreed on January 20, 1981, to provide $ 4.2 million in advance payments. This agreement was memorialized as Modification No. 1 to the September 1980 contract. Concurrently, the SBA and Tri-Par established a special bank account to receive all payments due under the September 1980 contract, as security for the advance payment loan. In accordance with the SBA's regulations, all disbursements from the account required the SBA's countersignature. 13 C.F.R. § 124.1-2(c)(1)(ii)(A) and (B) (1986). In addition, every withdrawal from the special account to pay Tri-Par suppliers required the submission of the supplier's original invoice and a copy of Tri-Par's billing to the receiving entity. 13 C.F.R. § 124.1-2(d)(1) (1986). The SBA also retained a "paramount lien" on the credit balance in the account and on any supplies contracted for under the September 1980 contract.

 The SBA sent the DFSC a copy of contract Modification No. 1, notifying it of the restrictive conditions to which Tri-Par was subject in connection with the $ 4.2 million advance payment. Tri-Par received all of the authorized advance payment funds by late May 1981.

 In this manner, the SBA recouped approximately $ 660,000, reducing its exposure on the advance payment loan from $ 1.3 million to $ 657,694. As a result of these recovery efforts, Koch was not paid for its August and September 1981 deliveries to Tri-Par, totaling $ 495,543.22. The SBA recovered the remainder of the advance payment loan through stop payment orders issued on a separate section 8(a) contract held by Tri-Par.

 This is where ATC and Tidewater come into the story. In the early part of 1981, the SBA commenced negotiations with Tri-Par concerning the potential award of another section 8(a) subcontract. Under this subcontract, Tri-Par would supply fuel oil to the DFSC in the southeastern part of the United States ("the Southeast contract"). Tri-Par began simultaneously negotiations with Tidewater to supply these petroleum products on credit. Tidewater then engaged ATC in negotiations to join in supplying fuel oil to Tri-Par. ATC/Tidewater's Exhibit C at para 7. ATC and Tidewater subsequently agreed to supply the product to Tri-Par on credit. Id. at para. 8.

 Tri-Par advised the SBA that it had secured a source of supply for the Southeast contract. ATC/Tidewater's Exhibits 10, 11, 23. Thereafter, the SBA awarded the subcontract to Tri-Par on June 4, 1981. Id. at 21. Under the terms of the subcontract, Tri-Par was to deliver approximately $ 12.2 ...

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