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.
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