If you are a subcontractor or a sub-subcontractor / supplier in direct privity of contract with a subcontractor on a federal project, you NEED to know your Miller Act payment bond rights. Why? Because the payment bond is designed to protect YOUR interests as a mechanism to insure non-payment.
Sub-subcontractors and suppliers in direct privity of contract with a subcontractor MUST serve the prime contractor within 90 days of their final furnishing date a notice of non-payment stating “with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed [e.g., the subcontractor].” 40 USC 3133(b)(2). Please do not neglect this all-important initial step in preserving a Miller Act payment bond claim. The notice should be served from the final furnishing of labor or materials exclusive of punchlist or warranty / corrective work. (Notably, subcontractors in direct privity of contract with the prime contractor do not need to serve this notice of non-payment on the prime contractor.)
In U.S. f/u/b/o Butler Supply, Inc. v. Power & Data, LLC, 2014 WL 4913421 (E.D.Miss. 2014), a supplier furnished electrical materials to an electrical subcontractor working on a federal project. Due to non-payment, the supplier sued the prime contractor’s Miller Act payment bond. The prime contractor argued that the supplier is not a valid Miller Act payment bond claimant because it did not have a direct contract with the supplier. The federal district court dismissed this argument because the electrical subcontractor signed a credit application and corresponding personal guaranty that served as the basis of a direct contract between the supplier and subcontractor. To this point, the federal district court expressed, “[S]eparate order of materials under an open account or credit basis, typically represented in purchase orders or invoices, satisfy the [Miller] Act’s underlying contract requirement.” Butler Supply, supra, at *3.
Next, the prime contractor argued that the supplier did not timely serve its written notice of non-payment within 90-days of final furnishing because the supplier could not prove that the materials were delivered to the job. The federal district court dismissed this argument too since actual delivery or incorporation of materials into a federal project is immaterial with respect to a supplier’s Miller Act rights. What is material is the “supplier’s good faith belief that the materials were intended for the specified work [project].” Butler Supply, supra, at *4 (internal quotation and citation omitted). In this instance, the supplier submitted invoices showing the material furnished, the price of the material, the name and location of the project, and delivery tickets showing the materials were signed by the subcontractor.
In Butler Supply, the federal district court granted summary judgment in favor of the supplier’s Miller Act claims dismissing the prime contractor’s arguments. Although this ruling it outside of Florida, the same result should be achieved in a Miller Act suit in Florida. The key is to (a) establish a direct contractual relationship with a subcontractor and (b) establish your final furnishing date with documentary evidence (since you can expect the prime contractor to challenge the timeliness of the written notice of non-payment). In Butler Supply, the supplier relied on a credit application (and subsequently submitted invoices), which is a routine document required by suppliers, especially suppliers that furnish material on credit or through an open account. And, the supplier relied on invoices and delivery tickets reflecting its final furnishing date and that it had a good faith belief the materials furnished would be utilized on the project.
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.