FORUM SELECTION PROVISIONS ARE NOT TO BE OVERLOOKED…EVEN ON FEDERAL PROJECTS

Posted on August 17, 2024August 17, 2024 by David Adelstein

Forum selection provisions are NOT to be overlooked. Ever. Treat them seriously. Even on federal projects where there is a Miller Act payment bond. Consider forum selection provisions on the front end when negotiating your contract.

In a recent opinion, U.S. f/u/b/o Timberline Construction Group, LLC vs. Aptim Federal Services, LLC, 2024 WL 3597164 (M.D.Fla. 2024), a joint venture prime contractor was hired by the federal government to build a temporary housing site. The joint venture prime contractor obtained a Miller Act payment bond. The joint venture then entered into a subcontract with one of its joint venture members and the member-subcontractor then engaged a sub-subcontractor. The sub-subcontractor claimed it was owed $3.5 Million and sued the member-subcontractor, as well as the prime contractor’s Miller Act payment bond, in the Middle District of Florida. The member-subcontractor and the Miller Act payment bond sureties moved to transfer venue to the Middle District of Louisiana pursuant to a forum selection clause in the contract between the sub-subcontractor and the member-subcontractor. The contract provided that the exclusive venue would be a United States District Court located in Louisiana.

Forum selection provisions are analyzed in federal court under 28 U.S.C. 1404(a): “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” U.S. f/u/b/o Timberline, supra at *2. A forum selection provision is presumptively valid and given controlling weight. Id. (quotations and citations omitted).

The sub-subcontractor argued that venue was appropriate in the Middle District of Florida under the Miller Act. The sub-subcontractor was correct in this regard. But, as the District Court maintained, “binding precedent directs us to give the forum-selection clause the same fore we would generally give it in any other civil action. This is so because the Miller Act’s venue provision is ‘merely a venue requirement’ and not jurisdictional.” U.S. f/u/b/o Timberline, supra, at *2. And as often the case, private contracting parties can agree to litigate Miller Act claims in other venues based on their agreed-upon forum selection provision. Id.

While the District Court agreed with the sub-subcontractor that Florida has an interest in having a local controversy resolved in its courts which weighs against transfer, the District Court found: (1) a Miller Act claim deals with a federal question and courts routinely apply laws of other jurisdictions to resolve breach of contract claims; (2) Louisiana judges could resolve this dispute no different than Florida judges; and (3) the sub-subcontractor cannot show the case would unfairly burden Louisiana citizens with jury duty. This is important because the sub-subcontractor bore the heavy burden in demonstrating that transferring the case to the forum per the forum selection provision is unwarranted. The sub-subcontractor could not carry this burden.

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.

JUDICIAL ECONOMY DISFAVORS ENFORCEMENT OF MANDATORY FORUM SELECTION CLAUSE

Posted on November 25, 2023November 25, 2023 by David Adelstein

Mandatory forum (venue) selection provisions are generally construed in favor of enforceability. Parties agreed to the forum for disputes so why not enforce them, right? A recent federal district court case out of the Eastern District of Louisiana exemplifies an exception grounded in judicial economy which disfavors the enforceability of mandatory forum selection provisions. Keep in mind that this judicial economy exception is fairly limited but the fact pattern below demonstrates why enforcing the mandatory forum selection provision was disfavored due to judicial economy.

In U.S. f/u/b/o Exposed Roof Design, LLC v. Tandem Roofing, 2023 WL 7688584 (E.D.La. 2023), a sub-subcontractor filed a Miller Act payment bond lawsuit against the prime contractor and the prime contractor’s Miller Act payment bond sureties. The sub-subcontractor also sued the subcontractor that hired it. However, the sub-subcontractor’s subcontract with the subcontractor included a mandatory forum selection provision in a different form. The subcontractor moved to sever and transfer the sub-subcontractor’s claims against it to the forum agreed upon in the subcontract. The trial court denied the severance and the transfer. Below are the reasons.

First, the prime contractor and the Miller Act payment bond sureties were NOT parties to the subcontract. Therefore, they were not bound by the forum selection provision in the subcontract. The trial court, going through factors regarding severance, explained, “[Sub-subcontractor’s] breach of contract and quantum meruit claims against [subcontractor] arose out of the same events that gave rise to [sub-subcontractor’s] Miller Act claims against [the prime contractor and prime contractor’s Miller Act payment bond sureties]. All of the claims arise from Defendants’ alleged failure to pay [sub-subcontractor] for work it performed on the Project.” Tandem Roof Design, supra, at *7.

Second, the trial court found that the “elements of a Miller Act claim share similar elements to the breach of contract and quantum meruit claims.” Tandem Roof Design, supra, at *7. In other words, the sub-subcontractor’s Miller Act payment bond claim against the prime contractor and Miller Act payment bond sureties were “inextricably intertwined” with the sub-subcontractor’s claims against the subcontractor that hired it. See id.

Third, the trial court maintained, “judicial economy would be undermined with two similar cases proceeding in two federal district courts. If the state law claims were transferred, this Court would either have to stay the case here while [sub-subcontractor] and [subcontractor] determine how much is owed to [sub-subcontractor] or proceed with duplicate proceedings to determine [subcontractor] and the other Defendants’ liabilities to [sub-subcontractor].” Tandem Roof Design, supra, at *7.

Fourth, the trial could expressed that the “non-signatory Defendants may face prejudice if the claims against [subcontractor] were to proceed [in a different forum] without them. If [the] claims against the non-signatory Defendants were stayed in this Court, while claims against [subcontractor] proceeded in [the different forum], that court would determine the amount [subcontractor] owes to [sub-subcontractor], but then non-signatory Defendants may ultimately be held liable to [sub-subcontractor] for repayment of that amount under the Miller Act in this Court.” Tandem Roof Design, supra, at *8.

And, fifth, the trial court noted that, “the same witnesses and documents would like be presented to prove each of the claims.” Tandem Roof Design, supra, at *8.

For these five reasons, the trial could held that although the mandatory forum selection clause in sub-subcontractor’s subcontract with subcontractor favored severance and transferring venue to the forum per the clause, judicial economy, on the other hand, disfavored the severance and transfer, meaning judicial economy disfavored enforcing the mandatory forum selection provision.

LABOR UNDER THE MILLER ACT AND ESTOPPEL OF STATUTE OF LIMITATIONS

Posted on April 29, 2023April 29, 2023 by David Adelstein

If you want a case that goes into history of the federal Miller Act, check out the Fourth Circuit Court of Appeal’s opinion in U.S. ex rel. Dickson v. Fidelity and Deposit Company of Maryland, 2023 WL 3083440 (4^th Cir. 2023). While I am not going to delve into this history, it’s a worthwhile read. It is also a worthwhile read for two other points.

First, it discusses what constitutes “labor” under the Miller Act.

Second, it discusses doctrine of estoppel to prevent a surety from raising the statute of limitations to bar a Miller Act payment bond claim, which is a doctrine you do NOT want to rely on, as this case reinforces.

Both of these points applicable to Miller Act claims are discussed below.

This case dealt with a prime contractor renovating staircases that was terminated by the federal government. The prime contractor hired a professional engineer as its subcontractor to serve as its project manager and supervise labor on the project. The engineer/subcontractor also had “logistical and clerical duties, taking various field measurements, cleaning the worksite, moving tools and materials, and sometimes even watering the concrete himself.” Dickson, supra, at *1.

The subcontractor submitted an approximate $400,000 claim to the prime contractor’s Miller Act payment bond. Roughly a year later, the surety denied the claim stating the subcontractor was pursuing labor not covered under the Miller Act. The surety asked the subcontractor to resubmit its claim and, once received, will conduct another review while reserving all rights. The subcontractor elected to sue the Miller act payment bond surety.

The trial court granted summary judgment in favor of the surety finding the subcontractor’s work did not qualify as recoverable labor under the Miller Act. The trial court further held there were no grounds for an estoppel argument to estop the surety from raising the statute of limitations since the subcontractor’s payment bond claim was filed more than a year after its final furnishing. The subcontractor appealed.

Labor under the Miller Act

What constitutes labor under the Miller Act is important because it determines what is recoverable and, equally important, “‘[t]he statute of limitations funs ‘one year after the day on which the last of the labor was performed.’” Dickson, supra, at *6 (citation omitted).

“While published caselaw interpreting the word ‘labor’ under the Miller Act is sparse, courts have largely agreed that tasks involving “physical toil” are labor and that on-site supervision of “physical toil” is also labor.” Dickson, supra, at *3.

With respect to the subcontractor’s on-site supervision, the Fourth Circuit found this was recoverable labor under the Miller Act. “The bulk of [the subcontractor’s] work involved both direction and supervision of manual labor and occasional performance of manual labor and therefore qualifies as ‘labor.’” Dickson, supra, at *6.

The subcontractor’s supervision, however, was performed outside the one-year limitations period. In furtherance of trying to create an argument that the Miller Act payment bond lawsuit was timely filed, he argued that he performed a (timely) final inventory which should constitute labor under the Miller Act. The Fourth Circuit found this did NOT constitute labor or physical toil under the Miller Act and was merely clerical—“And we agree with the district court’s conclusion that, based on this record, taking the final inventory of a job site lacks the ‘physical exertion’ and ‘[b]odily toil’ required to qualify as labor.” Dickson, supra, at *7.

Notably, this case does have an interesting dissent that touches on a discussion that mental toil or mental exertion should constitute labor. Sure, this dissent is not the law. Yet, if you need to create an argument in this regard, this dissent provides the basis to do so.

Estoppel

For the subcontractor to have a valid Miller Act payment bond claim, the surety must be estopped from raising the statute of limitations; otherwise, the lawsuit was untimely filed. But for estoppel to apply, the subcontractor would have to demonstrate it was misled by the surety to its prejudice. Dickson, supra, at *7 (“And in Miller Act disputes, estoppel ‘arises where one party by his words, actuals, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit had passed, breaks off negotiations and denies liability and refuses to pay.’”) Id. (citation omitted).

Unfortunately for the subcontractor, estoppel did not apply. This means the lawsuit was untimely filed!

Here, there was no affirmative indication [the surety] would acknowledge and pay the claim. There were no negotiations or promises to pay. Instead, [the surety] only promised to investigate the claim. Not only did [the surety] not promise to acknowledge and pay the claim, but it repeatedly made clear its communications were for investigative purposes and reserved all rights and defenses.

Dickson, supra, at *8.

Don’t let this happen to you. Timely file your Miller Act payment bond lawsuit.

SUPERINTENDENT’S ON-SITE SUPERVISION COMPENSABLE AS LABOR UNDER MILLER ACT

Posted on February 26, 2023February 26, 2023 by David Adelstein

A recent Miller Act payment bond decision out of the District of Columbia Circuit Court of Appeals, U.S. f/u/b/o Civil Construction, LLC v. Hirani Engineering & Land Surveying, PC, 58 F.4^th 1250 (D.C. Circ. 2023), dealt with the issue of whether a subcontractor’s superintendent constitutes recoverable “labor” within the meaning of the Miller Act and compensable as a cost under the Miller Act that typically views labor as on-site physical labor.

The issue is that the Miller Act covers “[e]very person that has furnished labor or material in carrying out work provided for in a contract.” Civil Construction, supra, at 1253 quoting 40 U.S.C. s. 3133(b)(1). The Miller Act does not define labor. The subcontractor claimed labor includes actual superintending at the job site. The surety disagreed that a superintendent’s presence on a job site constitutes labor as the superintendent has to actually perform physical labor on the job site to constitute compensable labor under the Miller Act.

The subcontractor argued its subcontract and the government’s quality control standards required detailed daily reports that verified manpower, equipment, and work performed at the job site. It further claimed its superintendent had to continuously supervise and inspect construction activities on-site: “[the] superintendent had to be on-site to account for, among other things, hours worked by crew members, usage and standby hours for each piece of equipment, materials delivered, weather throughout the day, and all work performed. These on-site responsibilities reflected the government’s quality control standards, under which the superintendent as ‘the most senior site manager at the project, is responsible for the overall construction activities at the site…includ[ing] all quality, workmanship, and production of crews and equipment.” Civil Construction, supra, at 1253-54.

The DC Circuit Court of Appeals, importantly, looked at how other appellate courts analyzed this issue:

Other courts have taken into account the nature of a superintendent’s oversight responsibilities in concluding that a superintendent’s cost was compensable “labor.” Referencing the trend in other courts, the Eighth Circuit concluded that “the on-site supervisory work of a project manager falls within the purview of the Miller Act if such a superintendent did some physical labor at the job site or might have been called upon to do some on-site manual work in the regular course of his job.” That is,“only certain professional supervisory work is covered by the Miller Act, namely, ‘skilled professional work which involves actual superintending, supervision, or inspection at the job site.’ ” The Eighth Circuit acknowledged that the term labor generally includes physical rather than professional work but distinguished those professionals who superintend on-site as performing labor.

Civil Construction, supra, at 1254 (internal citations omitted).

Based on this, the DC Circuit Court of Appeals, reviewing this issue for the first time, held: “Given that the construction work at issue had to be supervised and inspected for conformance with the subcontract and other requirements, such as government quality control standards, the superintendent’s on-site supervisory work constitutes “labor” within the meaning of the Miller Act.” Civil Construction, supra, at 1254.

If confronted with this issue as to the recovery of an analogous labor cost under a Miller Act payment bond claim, do exactly what the subcontractor did which is to tie the actual superintending, i.e., supervision, to the requirement of the subcontract itself including incorporated documents.

DO NOT FILE A MILLER ACT PAYMENT BOND LAWSUIT AFTER THE ONE-YEAR STATUTE OF LIMITATIONS

Posted on October 8, 2022October 8, 2022 by Edward Garber

Under the Miller Act, a claim against a Miller Act payment bond must be commenced “no later than one year after the date on which the last of the labor was performed or material was supplied by the person bringing the action.” 40 U.S.C. s. 3133(b)(4). Stated another way, a claimant must file its lawsuit against the Miller Act payment bond within one year from its final furnishing on the project.

Filing a lawsuit too late, i.e., outside of the one-year statute of limitations, will be fatal to a Miller Act payment bond claim. This was the outcome in Diamond Services Corp. v. Travelers Casualty & Surety Company of America, 2022 WL 4990416 (5^th Cir. 2022) where a claimant filed a Miller Act payment bond lawsuit four days late. That four days proved to be fatal to its Miller Act payment bond claim and lawsuit. Do not let this happen to you!

In Diamond Services Corp., the claimant submitted a claim to the Miller Act payment bond surety. The surety issued a claim form to the claimant that requested additional information. The claimant returned the surety’s claim form. The surety denied the claim a year and a couple of days after the claimant’s final furnishing. The claimant immediately filed its payment bond lawsuit four days after the year expired. The claimant argued that the surety should be equitably estopped from asserting the statute of limitations in light of the surety’s letter requesting additional information. (The claimant was basically arguing that the statute of limitations should be equitably tolled.) The trial court dismissed the Miller Act payment bond claim finding it was barred by the one-year statute of limitations and that equitable estoppel did not apply.

On appeal, the Fifth Circuit maintained that a party must show it was misled to its detriment when relying on equitable estoppel. The Fifth Circuit held the surety’s letter with its claim form and requesting additional information “made no representations that [the claimant] would be paid or that [the surety] would engage in claim negotiations with [the claimant], and explicitly reserved ‘all rights and defenses…include[ing], without limitation, defenses that may be available under any applicable notice and suit limitation provisions.’” Diamond Services Corp., supra. Hence, it was not reasonable for the claimant to rely on this letter in electing not to timely bring suit within the one-year statute of limitations.

Sureties, as a matter of course, will respond to its receipt of a claim requesting additional information. That letter may accompany the surety’s preferred claim form. Let’s be clear here. The completion of the claim form and furnishing of additional information is not a statutory requirement to pursue a Miller Act payment bond claim (and it’s not a statutory requirement to many statutory bonds). Whether the claim form is submitted, or whether additional information is furnished, does not equate to a surety paying a claim. It just does not. For this reason, there should NEVER be an instance where a claimant forbears its rights to timely sue thinking a surety will pay the claim based on the submission of a claim form or additional information.

Timely file your Miller Act payment bond lawsuit within the one-year statute of limitations. No ifs, ands, or buts. This is true whether you submit a claim form or additional information or you do not.

MILLER ACT STATUTE OF LIMITATIONS AND EQUITABLE TOLLING

Posted on June 4, 2022June 4, 2022 by Edward Garber

When it comes to a Miller Act payment bond claim, there is a one-year statute of limitations—“The Miller Act contains a statute of limitations provision that requires actions to ‘be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the claim.’” U.S. f/u/b/o Techniquex Specialty Flooring, Inc., v. Philadelphia Indemnity Ins. Co., 2022 WL 169070, *3 (M.D.Penn. 2022) (citing the Miller Act).

There is an argument, albeit a difficult one, to support an equitable tolling of the one-year statute of limitations. This would be an argument filed when the one-year statute of limitations expires, but there is reason for missing the statute of limitations caused typically by the overt misleading of the defendant (surety/bond-principal):

“Equitable tolling functions to stop the statute of limitations from running where the claim’s accrual date has passed.” “Equitable tolling is appropriate in three situations: (1) when the defendant has actively misled the plaintiff respecting the facts which comprise the plaintiff’s cause of action; (2) when the plaintiff in some extraordinary way has been prevented from asserting his rights; and (3) when the plaintiff has timely asserted his rights in the wrong forum.” The first ground for equitable tolling“appears to be the same, in all important respects” to equitable estoppel, which “excuses late filing where such tardiness results from active deception on the part of the defendant” and “what courts describe as ‘equitable tolling’ is encompassed by the latter two parts of our Circuit’s doctrine.” The extraordinary circumstances standard may be met “where the defendant misleads the plaintiff, allowing the statutory period to lapse; or when the plaintiff has no reasonable way of discovering the wrong perpetrated against her …”

Tehniquex, supra, at *5 (internal citations omitted).

If you are involved on a federal project, it is imperative that you appreciate your Miller Act payment bond rights. This includes knowing when your last date of furnishing is as well as your last date to file a Miller Act payment bond lawsuit. While equitable tolling is an argument if the statute of limitations expires, it is admittedly a very difficult argument to prevail on and will require evidence substantiating the basis for the equitable tolling. Otherwise, you are just a party that missed the deadline to file a Miller Act payment bond claim, and in most occasions, there is really no justifiable reason for this to be the situation.

THERE IS NO SYMPATHY IF YOU FAIL TO READ CLOSELY THE FINAL NEGOTIATED CONSTRUCTION CONTRACT

Posted on February 20, 2022February 20, 2022 by Edward Garber

When an opinion in a case starts with, “Unlike some motions, not even the most ingenious lawyers could make this one complicated,” you know you are in for an interesting read. This was how the opinion started in U.S. f/u/b/o Hambric Steel and Fabrication, Inc. v. Leebcor Services, LLC, 2022 WL 345636 (M.D. GA. 2022), which concerns a Miller Act payment bond dispute between a subcontractor and prime contractor on a federal construction project.

As demonstrated below, the moral of this case is in fact simple. Read what you sign BEFORE you sign! No ifs, ands, or buts. Failure to do so will garner very little sympathy.

This case dealt with a prime contractor arguing that the subcontractor pulled the wool over its eyes by surreptitiously altering the final negotiated redlined contract between the parties. In particular, the prime contractor claimed that the dispute resolution provision was supposed to include a Virginia venue provision. However, the subcontractor “fraudulently” changed this provision to make it a Georgia venue provision after the final contract had been agreed to during the negotiation. Yet, it is undisputed that the executed contract between the parties included a Georgia venue provision.

The Miller Act contains a statutory venue requirement; however, this requirement can be modified by a venue provision / forum selection clause in the subcontract. Here the prime contractor wanted venue to be in Virginia even though the executed subcontract contained a Georgia venue provision. The BIG problem for the prime contractor:

[The prime contractor] has not pointed to any evidence that it was prevented from reading the revisions to the contract draft related to the forum selection clause. Through the exercise of reasonable diligence, [the prime contractor] certainly could have discovered the change. It possessed the revised draft, had ample time to review it, and chose to sign it. While [the subcontractor] may have edited the forum selection clause in a manner different than other revisions made during the negotiation process, nothing prevented [the prime contractor] from reading the final revised draft in its entirety before signing it. Choosing not to do so for the sake of convenience does not excuse it from being bound by the contract that it signed. Moreover, [the subcontractor’s] failure to affirmatively and specifically highlight the changes for [the prime contractor] does not amount to fraud. The revision was clearly set out in the final draft document and could have been noticed through reasonable diligence. Signing a contract that is different than the one the party thought it had negotiated is not a sufficient basis, standing alone, to reform the fully executed written agreement.

Leebcor Services, supra, at *2

GENERAL CONTRACTOR INTERVENING TO COMPEL ARBITRATION PER THE SUBCONTRACT

Posted on November 21, 2021November 21, 2021 by Edward Garber

It is not uncommon that a general contractor’s subcontract will include an arbitration provision. Or it will allow the general contractor to select binding arbitration as the method to resolve disputes at the general contractor’s SOLE OPTION. A general contractor’s subcontract should absolutely give the general contractor this important right. (Keep this in mind when drafting dispute resolution provisions for a general contractor.)

It is also not uncommon for a subcontractor the sue a general contractor’s payment bond surety, and NOT the general contractor. One reason to do this is to create an argument to avoid the dispute resolution provision in the subcontract. (Another reason is to avoid any pay-if-paid defense.) When this occurs, a general contractor may still want to arbitrate the subcontractor’s payment bond dispute and a way to do so is for the general intervene in the lawsuit and move to compel arbitration. Sometimes, it is even practical for the general contractor to immediately initiate the arbitration process against the subcontractor, particularly if the general contractor wants to assert a counterclaim, so that the motion to compel is supported by the formal demand for arbitration (and filed with the American Arbitration Association or other body administering the arbitration). I have done this on a number of occasions.

By way of example, in U.S. f/u/b/o American Electric Co., LLC, 2021 WL 5280665 (M.D.Fla. 2021), the general contractor hired a subcontractor for a federal construction project. The subcontract included a binding arbitration provision.

As required, the general contractor had a Miller Act payment bond. The subcontractor filed a Miller Act payment bond lawsuit in federal district court against the payment bond surety. The general contractor moved to intervene in the lawsuit to compel arbitration of the dispute and stay the dispute pending the outcome of arbitration. The general contractor also claimed that if arbitration is not compelled, it will assert a counterclaim against the subcontractor. The district court agreed that that the general contractor was entitled to permissively intervene under the Federal Rules of Civil Procedure:

[The general contractor] and [subcontractor] are the parties to the Subcontract, and, pursuant to the Payment Bond, [the general contractor] is jointly and severally liable for any sum the Court may find the Surety Defendants owe to [the subcontractor]. Under the circumstances similar to those presented in this action, other courts have found that the intervening general contractor’s claims share common questions of law or fact with the subcontractor’s suit against the general contractor’s surety. The Court reaches the same conclusion here. [The general contractor’s] claims and defenses share common questions of law and fact with the [payment bond] action pending, and, thus, [the general contractor] has shown that its interest is based on the action pending before the Court.

American Electric Company, supra, at *3 (internal citations omitted).

Additionally, the district court further found that the subcontractor would not be prejudiced by staying the action and compelling arbitration:

Here, all considerations weigh in favor of permitting [the general contractor] to intervene. First, allowing [the general contractor] to intervene in this action will further judicial economy by preventing a multiplicity of suits and the risk of inconsistent results. If denied intervention, [the general contractor] could still initiate an arbitration action or a separate lawsuit against [the subcontractor] on the underlying contract dispute. Similarly, if [the general contractor] is barred from intervening and [the subcontractor] recovers against the Surety Defendants, the Surety Defendants may file a separate action for indemnity against [the general contractor]. These various proceedings would waste resources dealing with the same dispute and would present the untenable risk of inconsistent results.

American Electric Company, supra, at *5 (internal citations omitted).

UNDERSTAND THE DISPUTE RESOLUTION PROVISION YOU ARE AGREEING TO

Posted on August 29, 2021August 29, 2021 by Edward Garber

When negotiating a contract, do not overlook the dispute resolution provision. It is one of the more important provisions in your construction contract. This provision will come into play and have ramifications if there is a dispute, which is certainly not uncommon on a construction project.

In dispute resolution provisions in subcontracts on federal projects, it is not unusual for that provision to include language that requires the subcontractor to STAY any dispute that concerns actions or inactions of the owner pending the resolution of any dispute between the owner and prime contractor relating to that action or inaction. A provision to this effect should be included for the benefit of the prime contractor. For instance, the provision may say the subcontractor agrees to stay any such claim against the prime contractor or prime contractor’s surety pending the outcome of any pass-through claim (or otherwise) submitted under the Contract Disputes Act.

For example, in U.S.A. f/u/b/o Ballard Marine Construction, LLC v. Nova Group, Inc., 2021 WL 3174799 (W.D. Wash. 2021), a prime contractor hired a subcontractor to perform a scope of work at a naval shipyard. A differing site condition was encountered and the subcontractor was directed to continue performance and track its costs. The subcontractor completed its work and submitted its approximate $13 Million claim from the prime contractor and its Miller Act payment bond surety. The prime contractor and surety refused to pay until the resolution of the pass-through differing site conditions claim to the federal government. The prime contractor had submitted a claim under the Contract Disputes Act to the federal government. The subcontractor was not interested in waiting until the resolution of the Contract Disputes Act claim and filed suit against the prime contractor and Miller Act payment bond surety. The prime contractor and surety moved to stay pending the outcome of the Contract Dispute Acts claim. The trial court agreed with the prime contractor explaining, “It is not fruitful to require [the prime contractor] to fend off [the subcontractor’s] claim against it, and the [Miller Act] sureties [the prime contractor] agreed to indemnify, while simultaneously advancing [the subcontractor’s] claim for additional payment from the government through the ongoing CDA process. [The subcontractor] agreed to such a dispute resolution procedure, and it does not claim that the increased costs were [the prime contractor’s] fault.” Nova Group, supra, at *8.

A subcontractor with such a provision is still required to timely perfect and preserve its rights by timely filing a lawsuit against the Miller Act payment bond surety. However, the subcontractor is now beholden to the Contract Dispute Act procedure which requires an initial decision by the contracting officer and, then, certain appeal rights. This is not what the subcontractor wanted because it elongates any potential resolution. However, this is what the subcontractor agreed to in the dispute resolution provision and benefits the prime contractor so that it does not have to fight the fight on two fronts, particularly when it is supporting the pass-through claim under the Contract Disputes Act claim process.

Remember, the dispute resolution provision in your contract is important and should not be overlooked; the provision has ramifications as shown in the above case!

NOT ALL WORK IS COVERED UNDER THE FEDERAL MILLLER ACT

Posted on April 25, 2021April 25, 2021 by Edward Garber

The recent opinion out of the Eastern District Court of Virginia, Dickson v. Forney Enterprises, Inc., 2021 WL 1536574 (E.D.Virginia 2021), demonstrates that the federal Miller Act is not designed to protect ALL that perform work on a federal construction project. This is because NOT ALL work is covered under the Miller Act.

In this case, a professional engineer was subcontracted by a prime contractor to serve on site in a project management / superintendent capacity. The prime contractor’s scope of work was completed by January 31, 2019. However, the prime contractor was still required to inventory certain materials on site, which was performed by the engineer. The engineer claimed it was owed in excess of $400,000 and filed a Miller Act payment bond lawsuit on February 5, 2020 (more than a year after the project was completed).

There are two immediate questions that pop out that this court deal with: (1) are the type of project management / superintendent-type services the engineer performed covered under the Miller Act; and 2) did the engineer timely file the Miller Act payment bond lawsuit within the statute of limitations if the project was completed more than a year prior to the engineer filing suit. Both answers resulted in a resounding No!

MILLER ACT PROTECTS LABOR

The Miller Act protects labor, and while “labor” is not a defined term under the Miller Act, “courts have limited the term to refer only to physical toil or manual labor.” Dickson, supra, at *2. Supervisory work is generally not considered labor unless it also includes manual labor. Id. “[C]lerical or administrative tasks [] even if performed at the job site, do not involve the physical toil or manual work necessary to bring them within the scope of the Miller Act.” Id. (citation omitted).

Here, the engineer was hired in a management and superintendent (supervisor) capacity. He was subcontracted to oversee manual labor. Any manual labor, to the extent there was any such as field measurement or inspections performed by the engineer, were incidental to his supervisory duties and “[t]aking field measurements and inspecting materials…were administrative tasks incidental to his role as project manager….[and] they do not rise to the level of physical toil necessary to recover under the Miller Act.” Dickson, supra, at *2 (citations omitted).

The type of work the engineer performed and sought payment for was NOT work covered under the Miller Act.

MILLER ACT STATUTE OF LIMITATIONS

The Miller Act requires a plaintiff to file suit “no later than one year after the day on which the last of the labor was performed or material was supplied” by the plaintiff. Dickson, supra, at *3 citing 40 U.S.C. s. 3133(b)(4).

Here, the project was concluded as late as January 31, 2019. “Work performed after the termination of the prime contract, like the inventory [the engineer] conducted February 8, 2019 is a post-project task and thus not recoverable under the Miller Act.” Dickson, supra, at *3.

Putting aside that inventory control would be deemed a clerical task and not “labor” covered under the Miller Act, the engineer cannot extend the one-year statute of limitations beyond one-year after the termination / completion of the project. Id.