REPAIRING ONE’S OWN WORK AND THE ONE YEAR STATUTE OF LIMITATIONS TO SUE A MILLER ACT PAYMENT BOND

Posted on April 9, 2018April 9, 2018 by Edward Garber

When it comes to Miller Act payment bond claims, repairing one’s own work does NOT extend the one year statute of limitations to file suit on a Miler Act payment bond. Belonger Corp., Inc. v. BW Contracting Services, Inc., 2018 WL 704379, *3 (E.D. Wisconsin 2018) (“The courts that have considered this question tend to agree that, once a subcontractor completes its work under the subcontract, repairs or corrections to that work do not fall within the meaning of ‘labor’ or ‘materials’ and, as such, do not extend the Miller Act’s one-year statute of limitations.”).

Well, what if the subcontractor was repairing its own work due to an issue caused by another subcontractor?

This was the situation in Belonger Corp. where a plumber was asked to unclog a plumbing line that had concrete in the line (caused by another subcontractor) months after the plumber had completed its contractual scope of work. Before the subcontractor did this work, it smartly sent an e-mail stating that it needs an e-mail acknowledgement that this additional work is authorized and a change order will be forthcoming. The contractor responded, “Yes, please proceed with repair work on a T&M [time and materials] basis….” Sure enough, the subcontractor unclogged the line and a change order was never issued.

The subcontractor filed a Miller Act payment bond claim for unpaid contract work plus change order work, such as unclogging the line. The subcontractor based its last day for purposes of the statute of limitations on the work associated with unclogging the line and not on the day it completed its contractual scope of work. If it was determined that the subcontractor’s last day / final furnishing date was when it fully completed its contractual scope of work, its Miller Act payment bond lawsuit would be untimely / barred by the one year statute of limitations to sue on a Miller Act payment bond.

The issue was whether the subcontractor’s remedial work to its own plumbing line extended its final furnishing date. The trial court found this to be a question of fact because this arguably was change order work that amended the subcontract to include this additional work. The fact that the subcontractor sent an e-mail before doing this work and the fact that the contractor responded helped the subcontractor create a question of fact that its payment bond claim was not untimely because unclogging its own plumbing line due to an issue caused by another trade subcontractor was additional subcontractual work that extended its final furnishing date.

If you are in this situation, the best bet is not to bank on this type of argument. File your Miller Act payment bond claim within one-year of finishing your contractual work. With that said, if you don’t, the argument raised by the subcontractor here that repairing its own work due to an issue caused by another subcontractor was additional work that modified the terms of the subcontract and extended its final furnishing date is a creative argument helped by the e-mail this subcontractor smartly sent.

For more information on the Miller Act, check out this ebook.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SUBCONTRACTOR’S MILLER ACT PAYMENT BOND CLAIM

Posted on August 31, 2017August 31, 2017 by Edward Garber

Since I wrote my ebook on the application of federal Miller Act payment bonds, I have not discussed a case applying the Miller Act. Until now!

Below is a case that reinforces two important points applicable to Miller Act payment bond claims. First, the case reinforces what a claimant needs to prove to establish a Miller Act payment bond claim. Very important. Second, the case reinforces that a subcontractor is going to be governed by its subcontract. This means that those provisions regarding payment and scope of work are very important. Not that you did not already know this, but ignoring contractual requirements will not fly.

In U.S.A. f/u/b/o Netplanner Systems, Inc. v. GSC Construction, Inc., 2017 WL 3594261 (E.D.N.C. 2017), a prime contractor hired a subcontractor to run cabling and wiring at Fort Bragg. The subcontractor claimed it was owed a balance and filed a lawsuit against the general contractor the Miller Act payment bond.

“A plaintiff must prove four elements to collect under the Miller Act: (1) labor or materials were supplied for work in the contract; (2) the supplier of that labor or materials is unpaid; (3) the supplier had a good faith belief that the labor or materials were for the specified work; and (4) jurisdictional requisites are met.” U.S.A. f/u/b/o Netplanner Systems, Inc., supra, at *5.

The prime contractor claimed that the subcontractor was not owed any balance since it violated terms of the subcontract regarding its timely performance. Per the subcontract, the subcontractor agreed that it would perform and complete its work in accordance with the schedule approved by the federal government and that final payment will be made when the subcontractor fully performed in accordance with the requirements of the Contract Documents.

In this case, the trial court determined there were questions of fact involving whether the subcontractor complied with the terms of the subcontract. But, in doing so, the trial court confirmed, again, what we already know — that the subcontractor’s performance will be determined in reference to its underlying subcontract.

“‘Whether a subcontractor has been paid in full for providing labor and materials must be determined by reference to the underlying subcontract as it relates to the scope of the work and the payment terms.’” U.S.A. f/u/b/o Netplanner Systems, Inc., supra, at *5 quoting U.S. ex rel. Acoustical Concepts, Inc. v. Travelers Cas. and Sur. Co. of Am., 635 F.Supp.2d 434, 438 (E.D. Va. 2009).

EBOOK: MILLER ACT PAYMENT BOND FUNDAMENTALS

Posted on March 15, 2017March 15, 2017 by Edward Garber

I finally did it! I wrote an ebook on the fundamentals of Miller Act payment bonds. A nuts and bolts approach focusing on the practical application of Miller Act payment bonds. It is currently on Amazon, Nook, and iTunes. If you are interested in Miller Act payment bonds, check it out.

MILLER ACT AND “PUBLIC WORK OF THE FEDERAL GOVERNMENT”

Posted on February 28, 2017November 8, 2024 by Edward Garber

The Miller Act applies to the “construction, alteration, or repair of any public building or public work of the Federal Government.” 40 U.S.C. s. 3131.

A recent opinion out of the Northern District of Oklahoma sheds light on what the Miller Act means regarding its application to any public work of the Federal Government. See U.S. v. Bronze Oak, LLC, 2017 WL 190099 (N.D.Ok. 2017). If the project is not a public works project of the Federal Government, the Miller Act does not apply.

In this case, the Department of Transportation entered into an agreement with the Cherokee Nation where the Department would provide lump sum funding and the Nation would use the money to fund transportation projects. Based on the federal funding, the Nation issued a bid for a transportation project in Mayes County, Oklahoma and the project was awarded to a prime contractor. The prime contractor provided a payment bond that identified the United States as the obligee (as a Miller Act payment is required to do) and stated that it was issued per the Miller Act. Thereafter, the Nation and Mayes County, Oklahoma entered into a Memorandum of Understanding where the County would assume responsibility for the construction and maintenance of the project and the Nation would pay the County an agreed amount upon the completion of the project.

A subcontractor filed suit claiming the prime contractor owed it money for work performed on the project. One of the counts asserted was against the payment bond – the subcontractor claimed it was a Miller Act payment bond. The prime contractor and payment bond surety moved to dismiss the lawsuit arguing that the payment bond is not a Miller Act payment bond, thus, the federal court has no jurisdiction to entertain the lawsuit. How could this be? The payment bond itself said it was issued per the Miller Act and identified the United States as the obligee as a Miller Act payment bond is required to do.

The underlying issue the Court examined was whether the project was a public works project of the Federal Government. Again, if it was not, the Miller Act did not apply. The Court explained:

Whether plaintiff may bring a suit under the Miller Act depends on whether the project is a “public work of the Federal Government.” The statute itself gives no guidance in interpreting the phrase. While there is no clear definition or test for classifying a project a “public work of the Federal Government,” courts often look to the following factors: “whether the United States is a contracting party, an obligee to the bond, an initiator or ultimate operator of the project; whether the work is done on property belonging to the United States; or whether the bonds are issued under the Miller Act.” Here, on the one hand, the United States is not a contracting party or an initiator or ultimate operator of the project, and the work was not done on federal land. On the other hand, the United States is obligee of the payment bond, and the bond was issued under the Miller Act. Additionally, the Nation funded the project with money it received from the federal government…and the DOT retained some control over the project by requiring semi-annual reports on, and occasional access to for inspections….

Bronze Oak, LLC, supra, at *2 (internal citations omitted).

To the dismay of the subcontractor-claimant, the Court held that the payment bond was NOT a Miller Act payment bond irrespective of what the bond actually said. This meant that the Court had no jurisdiction to entertain the lawsuit (as there was no other basis that would give the federal court subject matter jurisdiction). Although the Federal Government had a relationship with the project through its federal funding, that relationship was not strong enough to label the project as a public works project of the Federal Government.

The United States is the obligee of the payment bond, but even with federal funding of the project, this is not enough to bring the project under the Miller Act. The project is owned and maintained by the County and is not on federal land. The Nation initiated the project, and the federal government is not a contracting party. Finally, agreements among the contracting parties that federal law will apply does not transform a project that does not fall under the Miller Act into one that does.

Bronze Oak, LLC, supra, at *4.

This was a tough ruling because if the subcontractor filed suit in state court the prime contractor and surety likely would have moved to dismiss that suit at some point in time arguing that the state court had no jurisdiction to entertain a Miller Act payment bond claim. So, this situation appeared to be a lose-lose to the subcontractor that relied on the terms of the bond in pursuing the bond as a Miller Act payment bond.

QUICK NOTE: AIM TO AVOID A STAY TO YOUR MILLER ACT PAYMENT BOND CLAIM

Posted on February 17, 2017February 17, 2017 by Edward Garber

Strategy is important. This is especially true if you are trying to avoid arbitration. In a recent federal district court case, a subcontractor sued the prime contractor and the Miller Act payment bond surety. The subcontractor, however, had an arbitration provision in its subcontract with the prime contractor. The prime contractor moved to compel arbitration pursuant to the subcontract and moved to stay the subcontractor’s Miller Act payment bond claim. The last thing, and I mean the last thing, the subcontractor wanted to do was to stay its claim against the Miller Act payment bond. However, the district court compelled the subcontractor’s claim against the prime contractor to arbitration and stayed the subcontractor’s Miller Act payment bond claim pending the outcome of the arbitration. See U.S. v. International Fidelity Ins. Co., 2017 WL 495614 (S.D.Al. 2017). This is not what the subcontractor wanted.

The outcome of this ruling may have been different if the subcontractor never sued the prime contractor and only sued the Miller Act payment bond surety. The Miller Act payment bond surety did not move to compel the Miller Act claim to arbitration evidently meaning there was nothing in the subcontract that would support such an argument. Had only the Miler Act payment bond surety been sued, the subcontractor may have likely been able to proceed with its payment dispute against the surety in federal district court without having to worry about arbitrating the same dispute with the prime contractor.

PRIME CONTRACTOR & SURETY’S RECOVERY OF ATTORNEY’S FEES IN MILLER ACT LAWSUIT

Posted on January 28, 2017November 8, 2024 by Edward Garber

Can a claimant recover attorney’s fees in a Miller Act payment bond dispute even though the Miller Act does not contain a prevailing party attorney’s fee provision? Yes, if the underlying contract that formed the basis of the suit provided for attorney’s fees.

What about a prime contractor and surety—can they recover their attorney’s fees if they prevail in a Miller Act payment bond claim and the underlying contract provides a basis for fees? The Eleventh Circuit Court of Appeals in U.S.A. f/u/b/o RMP Capital Corp. v. Turner Construction Co., 2017 WL 244066 (11^th Cir. 2017) seemingly just answered this question in the affirmative when it reversed a lower court’s ruling that precluded a prime contractor and surety that prevailed in a Miller Act claim from recovering their attorney’s fees:

“Like all other parties to contracts, general contractors on federal projects and their sureties can recover attorney’s fees where a contract allocates attorney’s fees to them. Here the contract that Turner [prime contractor] and the Sureties claim entitles them to an award of attorney’s fees was between Southwick [sub-subcontractor] and Bolena [subcontractor]. We remand to the district court to interpret that contract in the first instance, so as to determine whether it entitles Turner and the Sureties to an award of attorney’s fees, and if so how much. Id at *2 (internal citation omitted).

While this ruling may seem harmless, it is a favorable ruling to a prime contractor and surety that prevail in a Miler Act payment bond claim when the underlying contract provides for attorney’s fees (which would likely be the same contract the claimant relies on to seek attorney’s fees).

MILLER ACT PAYMENT BONDS

Posted on October 28, 2016August 8, 2019 by Edward Garber

Do you do work on federal construction projects? Are you familiar with the Miller Act? Below is a portion of a recent presentation on Miller Act payment bonds.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/10/miller-act1.pptx”]

PRIME CONTRACTOR INTERVENING INTO LAWSUIT AS PRINCIPAL OF MILLER ACT PAYMENT BOND

Posted on March 25, 2016November 8, 2024 by Edward Garber

In a Miller Act payment bond lawsuit (or any payment bond lawsuit for that matter), there are many times where a claimant (subcontractor, sub-subcontractor, or supplier) will sue the Miller Act payment bond surety and NOT the prime contractor or principal of the payment bond. There are also times where the prime contractor moves to intervene in the lawsuit as the principal of the payment bond. Perhaps the prime contractor wants to assert a counterclaim against the claimant or a third-party claim. These affirmative claims would belong to the prime contractor and not its surety; thus, the prime contractor moves to intervene in the lawsuit so that it can assert such affirmative claim(s) in the context of the dispute against its surety. Oftentimes, a federal district court will allow the prime contractor to permissively intervene in the lawsuit as the principal of the payment bond, especially if the prime contractor plans to assert an affirmative claim to allow for the efficient resolution and disposition of all such claims.

For example, in U.S. f/u/b/o Jackson Geothermal HVAC & Drilling, LLC v. Western Surety Co., 2016 WL 1030392, (D.N.J. 2016), the prime contractor hired a subcontractor to provide HVAC, geothermal services, plumbing, and sprinklers. The subcontractor, in turn, subcontracted the geothermal services to the claimant–a sub-subcontractor on the project. The sub-subcontractor (claimant) filed a lawsuit against the Miller Act payment bond surety for approximately $300,000. The prime contractor, as principal of the payment bond, moved to intervene in the lawsuit primarily to (a) assert an affirmative claim for negligence against the sub-subcontractor and (b) assert a third-party claim against its subcontractor for breach of contract and negligence. The issue before the court was whether the prime contractor should be able to intervene in the sub-subcontractor’s lawsuit against the Miller Act payment bond surety. The district could found that permissive intervention was appropriate to allow the prime contractor to intervene in the sub-subcontractor’s Miller Act payment bond lawsuit:

[T]he Court finds no reason to believe that permitting Ranco [prime contractor / principal of payment bond] to intervene in this matter will unduly delay these proceedings or unfairly prejudice the adjudication of Jackson’s rights. While Ranco could pursue its state law claims against B&S [subcontractor] and Jackson [sub-subcontractor claimant] in state court, “notions of judicial economy suggest aggregating them in a single proceeding […] rather than have different tribunals examine these issues at different times.” Indeed, as the Third Circuit has noted, the court’s policy preference, i.e., “judicial economy, favors intervention over subsequent collateral attacks.” As a result, the Court finds that intervention will protect all of the parties from having to revisit the main issues being litigated here in separate proceedings. Thus, the Court shall permit Ranco to intervene in this matter.

Western Surety Company, supra, at *4 (internal citation omitted).

There are times where a principal prime contractor intervening into a lawsuit against its surety may not be appropriate. But, if the principal has affirmative claims or if the surety happens to be represented by different counsel (such that the surety is not allowing the principal to defend it with the principal’s preferred counsel) the prime contractor has a stronger basis to intervene in the lawsuit as a principal of the payment bond. A prime contractor intervening in a lawsuit against its Miller Act payment bond surety is an important consideration based on the factual circumstances of the dispute.

QUICK NOTE: SUIT AGAINST MILLER ACT PAYMENT BOND MAY NOT BE BROUGHT UNTIL 90 DAYS AFTER FINAL FURNISHING

Posted on March 18, 2016March 18, 2016 by Edward Garber

If you have a claim against a Miller act payment bond, a lawsuit cannot be brought until 90 days after your final furnishing date. This is set forth in 40 USC s. 3133(b)(1) that provides if you “have not been paid in full within 90 days after the day on which…[you]…performed the last of the labor or furnished or supplied the material for which the claim is made [you] may bring a civil action on the payment bond.” In other words, your claim is ripe 90 days after your final furnishing date. With that said, even if you prematurely filed suit before this 90-day period, there is authority that the lawsuit should not be dismissed, but rather, you can cure this by filing a supplemental pleading (relating back to the original pleading). Otherwise, if the lawsuit was dismissed, you could potentially be facing a statute of limitations argument barring your right to seek a Miller Act payment bond claim.

DO NOT EXECUTE A WAIVER AND RELEASE IN CONSIDERATION OF PAYMENT THAT RELEASES CLAIMS YOU ARE NOT PREPARED TO RELEASE

Posted on March 13, 2016November 8, 2024 by Edward Garber

Absolutely do NOT execute a waiver and release in consideration of a progress payment that waives and releases claims (such as change order requests, lost productivity, or delay) that you are not prepared to release through the date of the release. Carve out such exceptions from the release—identify those claims or rights you are not prepared to release. Otherwise, when you go to pursue such claims, the waiver and release you previously executed will come back to haunt you!

For example, in U.S. f/u/b/o Chasney and Company, Inc. v. Hartford Accident & Indemnity Co., 2016 WL 852730 D.Md. 2016), a prime contractor on a federal project subcontracted with a mechanical and plumbing subcontractor. The subcontractor’s last partial waiver and release it executed in consideration of a progress payment was in November 2013 for payment through October 31, 2013. The waiver and release provided that the subcontractor waived and released all liens, claims, and demands against the prime contractor or its surety in connection with the project through the period covered by the payment (through October 31, 2013). The waiver and release included space for the subcontractor to identify exceptions. No such exceptions were identified. In fact, prior to November 2013, the subcontractor executed a total of 24 progress waivers and releases and never excepted a single item or claim from the release.

Notwithstanding, the subcontractor encountered design defects that caused it to incur additional costs and delayed its performance. The subcontractor asserted pass-through claims that the prime contractor submitted to the federal government. However, when the prime contractor and government settled their issues and a global settlement was reached, no amounts were assigned to respective items such as the subcontractor’s pass-through claims. The subcontractor then asserted the Miller Act payment bond lawsuit against the prime contractor’s Miller Act payment bond surety.

Applicable here, the surety and prime moved for summary judgment that any damages, including delay-related damages, that the subcontractor sought through October 31, 2013 were waived and released through the subcontractor’s November 2013 progress waiver and release. The District Court of Maryland agreed since all it had to look to was the last waiver and release the subcontractor executed where it waived and released such rights:

“By executing the October 31 Partial Release without exempting its claim, Chasney [subcontractor] relinquished its right to pursue the claim should it ever ripen. In hindsight, Chasney may regret its decision to sign such a release—but the Court’s task is to examine the agreement the parties did sign, not the agreement that one or the other now wishes they had negotiated instead….

***

In summary, the Court’s analysis begins and ends—as it must—with the unambiguous language of the Partial Releases. By signing each release, Chasney waived all claims relating to work performed through the covered period: no reasonable factfinder could conclude otherwise. While Chasney’s opposition brief teems with subtle linguistic maneuvers (and more than a few red herrings), Chasney cannot avoid the plain consequences of its contracting through artful argument….”

U.S. f/u/b/o Chasney & Company, 2016 WL at *7, 9 (internal quotations omitted).

Do NOT let this happen to you. Preserve your rights and claims and do NOT waive and release claims you are NOT prepared to release!