TENDERING UNDISPUTED SUMS TO CUT OFF ACCRUAL OF INTEREST

imagesDisputes over the quantum of money owed are not uncommon.  For instance, say a subcontractor claims it is owed $500,000 from the general contractor and the general contractor disputes this amount.   Say that of this $500,000, $300,000 is undisputed contract balance and $200,000 is disputed change orders.   In this situation, what should the general contractor do?

 

The issue in this hypothetical is the $300,000 in undisputed contract balance.  I am a strong believer in paying or tendering undisputed amounts so that the dispute is confined to the issues and amounts actually disputed between the parties.

 

Why tender undisputed funds?  An appropriate tender is a tender of money without any conditions tied to the depositing of the money; the tender must be absolute and unconditionalSee James A. Cummings, Inc. v. Young, 589 So.2d 950,955 (Fla. 3d DCA 1991) (finding that a written proposal to pay money after litigation commenced does not constitute a tender and a tender cannot include conditions on the money).

 

The check should be cash or a cashier’s check and should include interest on the undisputed money owed.  “[T]he tender of a mere check does not constitute payment of cash or its equivalent and it thus makes such a tender of payment merely conditional.”  See Enriquillo Export & Import, Inc. v. M.B.R. Industries, Inc., 733 So.2d 1124, 1127 (Fla. 4th DCA 1999). 

 

The objective of the tender is to relieve the paying party from any subsequent accrual of interest owed on the money.  See Morton v. Ansin, 129 So.2d 177, 182 (Fla. 3d DCA 1961); see also Ismark v. W.G.Mills, Inc., 899 So.2d 1213 (Fla. 2d DCA 2005) (“[A] tender of sums due on a date certain under a contract will stop the accrual of prejudgment interest only when the tender is absolute and unconditional.”).  The effect of an appropriate tender is to cut off additional interest owed on the money from the date of the tender. 

 

A tender of less than the full amount due, however, is insufficient.  Thus, if the amount of the tender does not include the interest to which a creditor is entitled, the tender is nugatory.”  Dade County v. American Re-Insurance Co., 467 So.2d 414 (Fla. 3d DCA 1985)  (internal citations omitted) (finding that tender was insufficient since it failed to include interest due on owed amount).

 

There is authority that a party can tender a disputed or protested amount as long as there are no conditions tied to the depositing of the money. See Gascoyne v. Bay Towne Property Owners Ass’n, Inc., 575 So.2d 671, 672 (Fla. 2d DCA 1991) (“A tender under protest will only be conditional if acceptance is predicated on the recipient being required to take some action.”).  The reason to do this would be to cut off the accrual of interest on the money.  However, in my opinion, tendering protested or disputed amounts should be carefully done to avoid the appearance that it is indeed a conditional payment or an insincere tender. 

 

Whether to tender money should ideally be done under the guidance of your attorney.  And, if a tender is considered, it is important that it is done properly so that you get the value of the reason for the tender–to cut off the accrual of interest.

 

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.

 

A LETTER OF INTENT CAN FORM THE BASIS OF AN ENFORCEABLE CONTRACT

letter of intentJust because there is not an executed subcontract, does not mean there is not an enforceable written contract between a contractor and subcontractor.   While it is good practice for there to be an executed contract in place, this does not always occur.  But, this lack of occurrence does not necessarily mean a performing subcontractor can escape contractual obligations merely because it never signed the subcontract.  Indeed, many times a subcontractor starts performing based on a letter of intent that it received from the contractor.  The letter of intent may indicate that a formal subcontract will be furnished to the subcontractor such as when the contractor is awarded the project or after the subcontractor starts performing under the letter of intent. If the subcontractor starts performing based on the letter of intent that it received, this letter of intent can certainly form the basis of an enforceable contract!

 

The decision in Sealevel Construction, Inc. v. Westcoast Corp., 2014 WL 3587264 (E.D.La. 2014) exemplifies how a letter of intent can form the basis of a written contract.  Here, a subcontractor on a federal project solicited bids from sub-subcontractors to perform aspects of its work based on the plans and specifications for the project.  The specifications, among other things, contained a liquidated damages section.  A sub-subcontractor submitted a bid to install concrete piles. The subcontractor accepted the bid and issued the sub-subcontractor a letter of intent. The letter of intent was signed by both the subcontractor and sub-subcontractor and referenced the specifications. The letter of intent further stated that a formal subcontract would be entered between the parties; however, a subcontract was never executed.

 

pilingThe sub-subcontractor started to perform its scope of piling work based on the letter of intent.  Thereafter, the subcontractor notified the sub-subcontractor of delays with the sub-subcontractor’s scope of work.  The sub-subcontractor was unable to cure the delays and the subcontractor hired another entity to supplement its sub-subcontractor’s work.  Nevertheless, as a result of delays to the sub-subcontractor’s scope of work, the government assessed liquidated damages against the prime contractor.  The prime contractor, in turn, withheld the amount of the liquidated damages from the subcontractor in addition to the prime contractor’s own extended general conditions.  The subcontractor then withheld this money from its sub-subcontractor in addition to its own extended general conditions. 

 

The Eastern District of Louisiana found that the letter of intent served as an enforceable contract between the subcontractor and sub-subcontractor and the sub-subcontractor breached the letter of intent through its delayed performance.  As a result, the subcontractor was entitled to withhold / back-charge the sub-subcontractor for (i) the costs spent on the supplemental entity to mitigate the sub-subcontractor’s delay and (ii) the portion of liquidated damages attributable to the sub-subcontractor’s delay.  The court did not, however, allow the subcontractor to back-charge the sub-subcontractor for other delay-related costs (such as the prime contractor’s and the subcontractor’s extended general conditions) since the sub-subcontractor never contractually agreed to these types of damages unlike the liquidated damages section that was included in the specifications referenced in the letter of intent.

 

 

Take-aways:

  • If a letter of intent is issued, the letter of intent should identify the subcontract amount, the applicable scope of work, and reference the plans and specifications.  The more detail in the letter of intent the better so that if the subcontractor starts performing based on the letter of intent there is a strong argument that the detailed letter of intent served as the contract between the parties (such as if the subcontractor refuses to sign the subcontract, the parties are unable to agree on the formal written subcontract, or if the subcontract is never issued).

 

  • It is good practice to have both the contractor and subcontractor sign the letter of intent.

 

  • An unexecuted contract does not mean there is not a written contract between the parties.  Parties need to consider this before taking an extreme position that a contract does not exist or that they are not bound by certain requirements.

 

  • It is  good practice for a party subcontracting work to be able to flow-down damages such as liquidated damages and their own extended general conditions.  In this case, the subcontractor would have been able to flow-down the prime contractor’s and its extended general conditions attributable to the sub-subcontractor’s delay had this been identified in the letter of intent or clarified by an executed written subcontract. 

 

 

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.

FEDERAL GOVERNMENT CONTRACTING AND RECOVERY OF ATTORNEY’S FEES UNDER THE EQUAL ACCESS TO JUSTICE ACT (“EAJA”)

UnknownThe ability to recover attorney’s fees against the federal government is a consideration before initiating a dispute against the government, whether in federal court or in an administrative proceeding.

 

The Equal Access to Justice Act (referred to as the “EAJA”) authorizes a court to award reasonable attorney’s fees and costs to a prevailing, eligible contractor in an action brought by or against the United States.  28 U.S.C. s. 2412(d)(1)(a).  The purpose of the EAJA has been explained as follows:

 

The purpose of the EAJA is to eliminate legal expenses as a barrier to challenges of unreasonable government action. Accordingly, the EAJA authorizes this court to award attorney fees and expenses incurred by contractors who prevail in litigation against the government provided the contractors do not exceed certain size and net worth limitations. The government may escape liability for legal expenses if its actions were substantially justified or if special circumstances make the award unjust.  The burden is on the government to present a substantial justification for its actions.”

Community Heating & Plumbing Co., Inc. v. Garrett, 2 F.3d 1143, 1145 (Fed.Cir. 1993) (internal citations and quotations omitted)

 

First, the contractor needs to be eligible to recover fees under the EAJA.  Not every contractor is eligible.  Such eligible contractors are defined by the EAJA as:

 

“(i) an individual whose net worth did not exceed $2,000,000 at the time the civil action was filed, or (ii) any owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, the net worth of which did not exceed $7,000,000 at the time the civil action was filed, and which had not more than 500 employees at the time the civil action was filed….”

28 U.S.C. 2412 (d)(2)(B)

 

Second, the contractor needs to be the prevailing party.  A prevailing contractor under the EAJA is a contractor that recovers a judgment on the merits in its favor.  Ulysses, Inc. v. U.S., 117 Fed.Cl. 772, 777 (Fed.Cl. 2014).   The government however, can avoid the award of fees against it if it proves it was substantially justified in advancing its position.  Substantial justification is a subjective standard determined on a case-by-case basis:

 

In determining whether to award attorney’s fees under EAJA, the Court looks to whether the Government’s position prior to and throughout litigation had a reasonable basis in both law and fact. While the appropriateness of the Government’s position might vary on individual matters, the Court considers the totality of circumstances to determine whether that position was substantially justified. In the words of the United States Supreme Court, ‘While the parties’ postures on individual matters may be more or less justified, the EAJA … favors treating a case as an inclusive whole, rather than as atomized line-items.’

Ulysses, 117 Fed.Cl. at 778 (internal quotations and citations omitted). 

 

Stated more simplistically, the government must prove that it advanced a position “justified to a degree that could satisfy a reasonable person.”  BCPeabody Construction Services, Inc. v. U.S., 117 Fed.Cl. 408, 413 (Fed.Cl. 2014) (internal quotation and citation omitted).

 

And third, even if the contractor is eligible to recover attorney’s fees under the EAJA and prevails against the government, this does NOT mean that it will recover 100% of the fees it incurred in the action.  The EAJA provides a statutory cap of $125/hour for attorney’s fees time unless the “court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys or the proceedings involved, justifies a higher fee.” 28 U.S.C. s. 2412(d)(2)(A).  Unfortunately, exceeding this hourly cap has nothing to do with the novelty of the issues, the competence of the attorney, or the results obtained.  BCPeadbody Construction Services, 117 Fed.Cl. at 415. This means that contractors should not bank on exceeding the statutory cap in recovering attorney’s fees against the government.

 

Importantly, there is also a relevant EAJA for administrative proceedings initiated prior to or instead of  any civil action in court.   5 U.S.C. s. 504.  This administrative EAJA largely mirrors the EAJA discussed above for civil actions, but applies to administrative proceedings. See Melkonyan v. Sullivan, 501 U.S. 89 (1991).

 

Before proceeding with a dispute against the federal government in federal court or an administrative proceeding, consider whether you have a basis under the EAJA to recover 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 AND TIMELY SERVING NOTICE OF NON-PAYMENT WITHIN 90 DAYS OF LAST FURNISHING

images-1Federal district courts interpreting the Miller Act provide value to those prime contractors, subcontractors, suppliers, and sub-subcontractors that work on federal construction projects, even if the decisions and projects are outside of Florida.

 

Remember, the Miller Act requires sub-subcontractors and suppliers in direct contract with a subcontractor but that have no contractual relationship with the prime contractor to serve a notice of non-payment to the prime contractor within 90 days from their last furnishing of labor or materials to the subcontractor.   Failure to provide this notice will result in a very strong defense from the prime contractor and surety that the supplier or sub-subcontractor has NO Miller Act payment bond rights.  Do not…let me repeat, do not…put yourself in this position if you are a supplier or sub-subcontractor on a federal project.  And, if you are a prime contractor or surety defending a Miller Act payment bond claim from a sub-subcontractor or supplier, analyze whether the claimant timely served its notice of non-payment within 90 days from its last furnishing to the subcontractor.

 

For example, in U.S. ex rel. Sun Coast Contracting Services, LLC v. DQSI, LLC, 2014 WL 5431373 (M.D.La. 2014), a sub-subcontractor initiated a Miller Act payment bond claim.  But–and this is a big but–the sub-subcontractor could not dispute the fact that it independently failed to serve a notice of non-payment within 90 days from its last furnishing to the subcontractor that hired it.   Instead, the sub-subcontractor argued that a notice of non-payment from the subcontractor to the prime contractor served as its notice since it included amounts the subcontractor owed to it.  Yet, the letter that the sub-subcontractor relied on never mentioned the sub-subcontractor or the amount the subcontractor owed to the sub-subcontractor.  Therefore, it was easy for the federal district court to conclude that the sub-subcontractor had NO Miller Act payment bond rights:

 

Beyond SCCS’s [subcontractors] letter, whose content did not even allude to the existence of a claim by Plaintiff [sub-subcontractor], Plaintiff has not put forth any assertion that it communicated its claim to DQSI [prime contractor] within ninety days after the date of Plaintiffs last performance on the project. By failing to provide proper notice according to statutory requirements, Plaintiff has no right to sue Defendants DQSI or Western Surety under the Miller Act.

Sun Coast Contracting Services, LLC, supra, at *4.

 

While federal courts liberally construe the method of service of the notice of non-payment from the supplier or sub-subcontractor to the prime contractor, it really should never get to this point as it simply gives the prime contractor and surety a legitimate defense to a Miller Act claim.  If you are a supplier or sub-subcontractor, do NOT deal with this unnecessary headache.  Properly preserve your Miller Act payment bond rights.  On the other hand, if you are a prime contractor or surety, you should absolutely explore whether the Miller Act payment bond claimant properly preserved its payment bond rights and, if not, defend the claim based on this failure.

 

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.