K-Con, Inc. v. Sec’y of the Army, 2018 U.S. App. LEXIS 31196 (Fed. Cir., November 5, 2018)

In September 2013 K-Con, Inc. (“K-Con”) entered into two contracts with the government to supply and construct pre-engineered metal buildings for a laundry facility and a communications equipment shelter.  The government issued both contracts using Standard Form 1449, entitled Solicitation/Contract/Order for Commercial Items.  The contracts’ terms did not contain any requirement to provide a performance or payment  bond.  Nor did they include FAR 52.228-15, which requires performance and payment bonds on construction contracts.

In October 2013 the government directed K-Con to supply performance and payment bonds before a notice to proceed could be issued.  K-Con initially refused but ultimately provided the bonds two years later.  The contracts were then adjusted to add the cost of the bonds.

K-Con submitted a claim under each contract for increases in costs for the two year delay, for a total value of $116,336.56.  The Contracting Officer denied the claim on the basis that the agreements were construction contracts, for which performance and payment bonds were mandatory pursuant to FAR 52.228-15, and that that provision was incorporated into the contracts pursuant to the Christian doctrine under which a court may insert a clause into a government contract by operation of law if that clause is required under applicable federal regulations.  G.L. Christian & Associates v. Unites States, 312 F.2d 418 (Ct. Cl. 1963).  K-Con appealed to the Armed Services Board, which affirmed the denial of the claims.  K-Con then appealed to the United States Court of Appeals for the Federal Circuit.
Continue Reading Federal Circuit, Citing the Christian Doctrine, Holds That Performance and Payment Bonds Are Required for All Construction Contracts, Even When the Bonding Requirement Is Not Expressly Stated in the Contract

Fisk Elec. Co. v. DQSI, L.L.C., 2018 U.S. App. LEXIS 17914 (5th Cir., June 29, 2018)

 DQSI, L.L.C., (“DQSI”) a general contractor, was hired by the Army Corps of Engineers (“Corps”) for a pump station construction project.  Western Surety Company (“Western”) issued a Miller Act payment bond on DQSI’s behalf.  DQSI hired Fisk Electric Company (“Fisk”) as subcontractor to perform electrical work on the project.

The project was delayed 464 days due, in part, to adverse weather conditions.  Fisk asserted expenses due to the delay of over $400,000 against DQSI and submitted a Request for Equitable Adjustment (“REA”) to DQSI for the 464 days of delay.

Fisk sued DQSI and Western pursuant to the Miller Act.  The parties then entered into a settlement agreement wherein Fisk would release DQSI for payment of approximately $55,000 and for DQSI’s agreement that it would submit the REA to the Corps and pursue it. 
Continue Reading Claimant Is Not Required to Conduct an Investigation Into the Veracity of the Representation to Prove Justifiable Reliance When Asserting a Fraudulent Inducement Claim Under the Miller Act

Pinnacle Crushing & Constr. LLC v. Hartford Fire Ins. Co., 2018 U.S. Dist. LEXIS 67965 (W.D. Wa. Apr. 23, 2018)

The Army Corps of Engineers (the “Corps”), as owner, and Cherokee General Corporation (“CGC”), as prime contractor, entered into a contract (the “Contract”) in connection with work at the Yakima Training Center (the “Project”).  CGC subcontracted with SCI Infrastructure (“SCI”) for certain work related to the Project (the “SCI Subcontract”), and SCI subcontracted with Pinnacle Crushing & Construction, LLC (“Pinnacle”) (the “Pinnacle Subcontract”).  CGC obtained a Miller Act payment bond (the “Bond”) from Hartford Insurance Co. (the “Surety”) to provide coverage for labor and materials supplied in carrying out the work.

After the Corps terminated the Contract with CGC, CGC submitted a claim under the Contracts Disputes Act.  As required by the SCI Subcontract, CGC asserted SCI’s pass through claims against the Corps, which included amounts allegedly owed to both SCI and Pinnacle.

Separately, SCI and Pinnacle sued CGC and the Surety to recover under the Bond for the work they performed under the subcontracts, but for which CGC had not paid them.


Continue Reading Subcontract Provision Requiring Subcontractor to Pass Through its Claims Does Not Prevent the Subcontractor From Suing to Recover Against Miller Act Bond

United States ex rel. Metro Mech., Inc. v. Triangle Constr. Co.,  2018 U.S. Dist. LEXIS 1487 (S.D. Miss. Jan. 4, 2018)

Triangle Construction Company, Inc. (“Triangle”) contracted with Mississippi Portfolio Partners III, LP (“Mississippi Partners”) to serve as the prime contractor on four apartment complex construction projects (the “Projects”) in Mississippi.  Triangle subcontracted the HVAC and plumbing work to Metro Mechanical, Inc. (“Metro”).  After Metro completed its work, Metro filed suit in the Federal District Court under the Miller Act, to collect sums due from Triangle and its payment bond surety.  Triangle moved to dismiss, asserting that the Court was without Miller Act jurisdiction because the projects and contracting parties were private.

The Miller Act requires contractors on “public work[s] of the Federal Government” to obtain payment bonds for the protection of subcontractors and suppliers.  See 40 U.S.C. § 3131.  To that end, the Millers Act also creates a civil action in federal court in favor of any “person that has furnished labor or material in carrying out work provided for” under a Miller Act contract and “that has not paid in full within 90 days.” 40 U.S.C. 3133(b)(1).  The District Court applied two alternative tests to determine whether the Projects were “public works of the Federal Government subject to the Miller Act.”


Continue Reading Federal Court in Mississippi Holds That Although Projects Were Constructed With Federal Funds, They Were Not “A Public Work of the Federal Government” and Therefore the Court Had No Jurisdiction Over a Subcontractor’s Claim Under the Miller Act, Where the United States Was Not a Contracting Party and the Projects Were Not Constructed on Federal Property

United States ex rel. J.A. Manning Constr. Co. v. Bronze Oak, 2017 U.S. Dist. LEXIS 6054 (N.D. Okla. Jan. 17, 2017)

 In May 2014 the Cherokee Nation issued a bid notice for bridge and roadway construction in Mayes County, Oklahoma (the “Project”). Funding was authorized pursuant to the Secretary of Transportation and Secretary of the Interior’s Tribal Transportation Program, 23 U.S.C. § 202, by which federal funding is offered to Native American tribal governments to pay the costs of certain transportation projects located on, or providing access to, tribal lands.

Bronze Oak, LLC submitted a bid proposal and was hired as the general contractor for Project, and J.A. Manning Construction Company (“JAMCC”) was hired as a subcontractor to supply labor and materials to the Project. Bronze Oak’s bid proposal provided that any resulting contract would be construed under U.S. and Cherokee Nation laws.  A payment bond was issued for the Project naming Bronze Oak as the principal, Mid-Continental Casualty Company as surety, and the United States as obligee.  The payment bond also stated it was for the protection of persons supplying labor and materials pursuant to the Miller Act.


Continue Reading Federal Court in Oklahoma Rules that Bond Issued on a Sovereign Tribal Construction Project is Not a Miller Act Bond Even Though it Stated it was Issued Pursuant to the Act and Named The United States As Obligee

United States ex rel. Tymatt Indus. v. Allen & Shariff Constr. Servs.
2013 U.S. Dist. LEXIS 114015 (D. Md. Aug. 13, 2013)

This action arose out of a subcontractor’s Miller Act claim for unpaid contract balances on a federal construction project. Allen & Shariff Construction Services, LLC (“Allen & Shariff”) was the prime contractor on a federal contract for the construction of a dam in Bethesda, Maryland, and related remediation (the “Project”). United States Security Company (“USSC”) was the surety on the Miller Act payment bond for the Project. Allen & Shariff subcontracted with Tymatt Industries, Inc. (“Tymatt”) to perform work on the Project (the “Subcontract”). The Subcontract contained a default provision stating that “should Tymatt fail to perform, after giving three days written notice Allen & Shariff had the option to terminate the [S]ubcontract for default if the defective performance was not cured.” Allen & Shariff issued three such notices to Tymatt, the last of which was issued on November 11, 2011. When Tymatt failed to cure, USSC sent Tymatt a termination notice on November 18, 2011 stating that the “[S]ubcontract…has been terminated due to lack of performance effective immediately.” Additionally, Allen & Shariff notified Tymatt that its “base access privilege [would] be terminated on November 23, 2011,” and requested that its equipment be removed prior to that date. Tymatt subsequently alleged that Allen & Shariff failed to pay $107,665.26 in amounts owed for work performed under the Subcontract. On Monday, November 26, 2012, Tymatt filed a Miller Act claim against USSC, as surety, to recover the monies allegedly due and owing.


Continue Reading U.S. District Court in Maryland Holds Work Performed After Termination Does Not Delay Commencement of One-Year Miller Act Statute of Limitations

United States of America ex rel D&M General Contracting, Inc v. Arch Ins. Co.
2013 U.S. Dist. LEXIS 111260 (D. Md. Aug. 5, 2013)

This action arose out of subcontractor’s claim for increased costs allegedly incurred as a result of delays on a federal government project. NTVI Enterprises, LLC (“NTVI”), as general contractor, entered into an agreement with the government to upgrade the chiller plant for a National Security Agency facility (the “Project”). NTVI posted a labor and material payment bond for the Project (the “Bond”) issued by Arch Insurance Company (“Arch”). NTVI then subcontracted with D&M General Contracting, Inc. (“D&M”) to perform electrical work on the Project. Midway through the Project, D&M alleged that the sequence of its work was altered by the government resulting in an additional $206,674.07 in costs to D&M. Pursuant to the Miller Act, D&M filed suit against Arch, as surety, to recover under the Bond its increased costs allegedly incurred.


Continue Reading U.S. District Court in Maryland Holds One-Year Statute of Limitations Under Miller Act Did Not Commence Until After Required Testing Performed by Subcontractor

National American Insurance Company v. United States
No. 2007-5016, 2007 U.S. App. LEXIS 20058 (Fed. Cir. August 23, 2007)
The US Court of Appeals for the Federal Circuit upheld the lower court’s grant of a motion for summary judgment. The Court held that a payment bond surety is equitably subrogated to the rights of the contractor whose debt it discharges, and thus can pursue a claim directly against the government.
The case arose out of a contract between Innovative PBX Services, Inc. (“Contractor”) and the United States Small Business Administration (the “government”) for the replacement of a telephone system at the Department of Veterans Affairs Medical Center. The Contractor subcontracted part of the work to Nortel Communications Systems, Inc. (“Subcontractor”). As required by the Miller Act, the Contractor executed payment and performance bonds in favor of the government with National American Insurance Company (“Surety”) as the surety. After completion of the contract work, the Subcontractor notified the Surety that it was owed approximately $675,000 for labor and materials that the Contractor had failed to pay for. The Subcontractor then instituted a Miller Act claim under the payment bond against the Surety, which the Surety settled. The Surety also notified the government that no addition payments should be made to the Contractor in light of the Miller Act claim and requested that all remaining contract funds be held for the Surety’s benefit. The government, however, did not follow the Surety’s request and made its final contract payment to the Contractor. As a result, the Surety filed a complaint against he government seeking damages of $280,000.
Continue Reading Federal Circuit Court of Appeals Holds that a Payment Bond Surety that Discharges a Contractor’s Obligation to Pay a Subcontractor is Equitably Subrogated to the Rights of Both the Contractor and Subcontractor and May Bring Suit Directly Against the United States

United States of America for the Use of DDC Interiors, Inc. v. Dawson Construction Co., Inc.,
No. 94-B-2699, 1995 U.S. Dist. LEXIS 10643 (D. Colo. July 25, 1995).
Waiver of subcontractor’s right to sue prime contractor and payment bond surety for extra work under the Miller Act must be “clear and express.” Minimally, an effective waiver of rights under the Miller Act must specifically mention the Miller Act and unambiguously express an intention to waive said rights.

Continue Reading US District Court in Colorado Holds Subcontractor's Miller Act Rights Unaffected by Subcontract's "Incorporation by Reference" and "Pay Upon Payment" Clauses