Tag Archives: Miller Act stay

UNDERSTAND THE DISPUTE RESOLUTION PROVISION YOU ARE AGREEING TO

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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!

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.

 

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

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imagesStrategy 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. 

 

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.