Tag Archives: Miller Act

“LABOR” THAT CAN BE PURSUED AGAINST A MILLER ACT PAYMENT BOND

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It is important to ensure you consult with counsel when it comes to Miller Act payment bond rights and defenses.  One consideration is the type of “labor” that can be pursued against a Miller Act payment bond.  The opinion in Prime Mechanical Service, Inc. v. Federal Solutions Groups, Inc., 2018 WL 6199930 (N.D.Cal. 2018) contains a relevant and important discussion on this topic.

 

In this case, a prime contractor on a federal construction project hired a subcontractor to prepare and install a new HVAC system.  The subcontractor was not paid and filed a lawsuit against the prime contractor’s Miller Act payment bond.   The prime contractor moved to dismiss the claim, with one argument being that design work the subcontractor was suing for was NOT “labor” that can be pursued against a Miller Act payment bond.  The Court agreed:

 

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” see United States ex rel. Shannon v. Fed. Ins. Co., 251 Fed. Appx. 269, 272 (5th Cir. 2007), or “physical toil,” see United States ex rel. Barber-Colman Co. v. United States Fid. & Guar. Co., No. 93-1665, 1994 WL 108502, at *3 (4th Cir. 1994). Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, see United States ex rel. Naberhaus-Burke, Inc. v. Butt & Head, Inc., 535 F. Supp. 1155, 1158 (S.D. Ohio 1982), some courts have found “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” see United States ex rel. Olson v. W.H. Cates Constr. Co., 972 F.2d 987, 990-92 (8th Cir. 1992) (internal quotation and citation omitted) (citing, as examples, “architect … who actually superintends the work as it is being done” and “project manager … [who] did some physical labor at the job site” (internal quotation and citation omitted)).

 

Here, plaintiff alleges it “attended 4 or 5 on-site field meetings … to determine the location and layout of the new equipment, … performed on-site field coordination with the existing equipment, … took on-site field measurements for fabrication of duct work and support hangers, … scheduled the start date and while on-site planned site access and crane locations, prepared product and equipment submittals, and obtained security passes.” (See FAC ¶ 12.) The above-listed services are, however, “clerical or administrative tasks which, 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.” See United States ex rel. Constructors, Inc. v. Gulf. Ins. Co., 313 F. Supp. 2d 593, 597 (E.D. Va. 2004) (holding subcontractor did not furnish “ ‘labor’ within the contemplation of the Miller Act” where subcontractor’s duties entailed paying invoices, reviewing subcontractor and vendor proposals, supervising the hiring of site personnel, and providing site coordination services). Although taking “on-site field measurements” (see FAC ¶ 12) may have involved some minor physical activity, it does not amount to the physical “toil” required by the Miller Act.

 

Prime Mechanical Service, 2018 WL 6199930, at *3.

 

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.

 

PROVIDING “LABOR” UNDER THE MILLER ACT

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shutterstock_611517449A recent opinion out of the Northern District of California discusses the “labor” required to support a Miller Act payment bond claim on a federal construction project.   It is a good case that discusses the type of labor required  to support a Miller Act payment bond claim.

 

In Prime Mechanical Service, Inc. v. Federal Solutions Group, Inc., 2018 WL 619930 (N.D.Cal. 2018), a prime contractor was awarded a contract to design and install a new HVAC system.  The prime contractor subcontracted the work to a mechanical contractor. The mechanical contractor with its sub-designer prepared and submitted a new HVAC design to the prime contractor and provided 4-5 onsite services to determine the location and layout for the new HVAC equipment, perform field measurements, obtain security passes, and plan site access and crane locations.  The mechanical contractor submitted an invoice to the prime contractor and the invoice remained unpaid for more than 90 days, which the prime contractor refused to pay.  The mechanical contractor than filed a Miller Act payment bond lawsuit.

 

The prime contractor and surety argued that the mechanical contractor had no valid Miller Act payment bond claim because it was seeking professional services and not the labor covered by the Miller Act.   The trial court agreed. 

 

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” or “physical toil.”  Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, some courts have found “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.”

 

Prime Mechanical Service, Inc., 2018 WL at *3 (internal citations omitted). 

 

The mechanical contractor attempted to argue that it was onsite and the onsite services it performed should constitute “labor.”   However, the onsite services the mechanical contractor identified were clerical or administrative-type services which did NOT involve “the physical toil or manual work necessary to bring them within the scope of the Miller Act.”  Prime Contractor Mechanical Service, Inc., 2018 WL at *3.  

 

In this case, the mechanical contractor gave it a worthy go to support a Miller Act payment bond claim. But, because the services it performed did not rise up the type of “labor” covered by the Miller Act, it was out of luck.   Had these services been coupled with actual  manual labor at the site connected to the installation of the new HVAC system, the result would have been much different since the mechanical contractor would have performed “labor” covered by the Miller Act. 

 

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.

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

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shutterstock_516982177When 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

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shutterstock_426148276Since 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).

 

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.

 

MILLER ACT AND “PUBLIC WORK OF THE FEDERAL GOVERNMENT”

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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.   

 

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.

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

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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 (11th 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).

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.

MILLER ACT PAYMENT BONDS

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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.

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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.

MILLER ACT CLAIM FOR UNSIGNED CHANGE ORDERS

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Contracts and subcontracts often contain language that requires change orders to be in writing and that no change order work shall be performed unless agreed to in advance in a signed change order.  Oftentimes change order work is performed but the parties have not complied with the strict requirements of the contract by having this work signed off by the parties in a change order prior to the commencement of the work.  Well, can such requirements be waived?  If so, can such change orders form the basis of a Miller Act claim?   The answer is generally yes provided the party arguing waiver can support the waiver with evidence (that the other party voluntarily relinquished the requirements through its course of conduct / actions).

 

This is exemplified in U.S. f/u/b/o Agate Steel, Inc. v. Jaynes Corp., Case No. 2:13-CV001907-APG-NJK (D. Nev. June 17, 2016), where a sub-subcontractor asserted a Miller Act payment bond claim for non-payment largely dealing with change order work that was never signed by the subcontractor that hired it.   The subcontract stated:

 

No change orders or contract additions will be made unless agreed to in writing….If additional work is performed and not covered in this contract [sub-subcontractor] proceeds at [its] own risk and expense. No alterations, additions, or small changes can be made in the work or method of the performance, without the written change order signed by [subcontractor] and [sub-subcontractor]. 

Jaynes, supra.

 

The sub-subcontractor submitted change order requests and time and material summaries to the subcontractor that hired it.  However, the subcontractor never signed the change orders or time and material summaries. The sub-subcontractor acknowledged that most of the requests for change order work was prompted by verbal authorizations, including written authorizations. Shortly thereafter, the subcontractor disputed the change order requests and claimed that the sub-subcontractor performed work without signed change orders.  The prime contractor and its Miller Act payment bond surety disputed the sub-subcontractor’s payment bond claim contending the sub-subcontractor never complied with its subcontract by not obtaining prior written approval in a change order before performing the change order work.

 

Here, the trial court held that the subcontractor waived the subcontract’s requirement that change orders be in writing signed by both parties thereby allowing the sub-subcontractor to recover against the Miller Act payment bond:

 

Here, Agate [sub-subcontractor] has presented evidence that American Steel [subcontractor] waived the requirement that change orders be approved in a writing signed by both American Steel and Agate. Agate presented change orders and T&M summaries for payment. In his June 18 email, American Steel’s president, Williamson, approved a revised contract amount of $126,907.00. He also directed Agate to proceed with work as soon as possible and asked how soon Agate could return to the work site. Agate subsequently performed more work on the project based on the approval of the change orders. No issue of fact remains that the parties therefore waived the requirement that the change orders be in a writing signed by both parties.

Ideally this issue would never arise because the parties would comply with the strict requirements of the contract and change orders would never be performed without there being a signed change order.  But we all know that this does not always happen leading to disputes relating to change orders after the work is already performed.  While such strict language is certainly beneficial, it is not absolute and the party performing the change order work can navigate around the strict requirements by presenting evidence establishing this requirement was waived.  Such evidence can be in the form of written authorizations to perform the work, the manner in which other change orders were handled, testimony from fact witnesses regarding oral authorizations, meeting minutes discussing the change, and other evidence that shows the party looking to enforce the requirements waived them through their course of conduct and actions.

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.