LABOR UNDER THE MILLER ACT AND ESTOPPEL OF STATUTE OF LIMITATIONS

Posted on April 29, 2023April 29, 2023 by David Adelstein

If you want a case that goes into history of the federal Miller Act, check out the Fourth Circuit Court of Appeal’s opinion in U.S. ex rel. Dickson v. Fidelity and Deposit Company of Maryland, 2023 WL 3083440 (4^th Cir. 2023). While I am not going to delve into this history, it’s a worthwhile read. It is also a worthwhile read for two other points.

First, it discusses what constitutes “labor” under the Miller Act.

Second, it discusses doctrine of estoppel to prevent a surety from raising the statute of limitations to bar a Miller Act payment bond claim, which is a doctrine you do NOT want to rely on, as this case reinforces.

Both of these points applicable to Miller Act claims are discussed below.

This case dealt with a prime contractor renovating staircases that was terminated by the federal government. The prime contractor hired a professional engineer as its subcontractor to serve as its project manager and supervise labor on the project. The engineer/subcontractor also had “logistical and clerical duties, taking various field measurements, cleaning the worksite, moving tools and materials, and sometimes even watering the concrete himself.” Dickson, supra, at *1.

The subcontractor submitted an approximate $400,000 claim to the prime contractor’s Miller Act payment bond. Roughly a year later, the surety denied the claim stating the subcontractor was pursuing labor not covered under the Miller Act. The surety asked the subcontractor to resubmit its claim and, once received, will conduct another review while reserving all rights. The subcontractor elected to sue the Miller act payment bond surety.

The trial court granted summary judgment in favor of the surety finding the subcontractor’s work did not qualify as recoverable labor under the Miller Act. The trial court further held there were no grounds for an estoppel argument to estop the surety from raising the statute of limitations since the subcontractor’s payment bond claim was filed more than a year after its final furnishing. The subcontractor appealed.

Labor under the Miller Act

What constitutes labor under the Miller Act is important because it determines what is recoverable and, equally important, “‘[t]he statute of limitations funs ‘one year after the day on which the last of the labor was performed.’” Dickson, supra, at *6 (citation omitted).

“While published caselaw interpreting the word ‘labor’ under the Miller Act is sparse, courts have largely agreed that tasks involving “physical toil” are labor and that on-site supervision of “physical toil” is also labor.” Dickson, supra, at *3.

With respect to the subcontractor’s on-site supervision, the Fourth Circuit found this was recoverable labor under the Miller Act. “The bulk of [the subcontractor’s] work involved both direction and supervision of manual labor and occasional performance of manual labor and therefore qualifies as ‘labor.’” Dickson, supra, at *6.

The subcontractor’s supervision, however, was performed outside the one-year limitations period. In furtherance of trying to create an argument that the Miller Act payment bond lawsuit was timely filed, he argued that he performed a (timely) final inventory which should constitute labor under the Miller Act. The Fourth Circuit found this did NOT constitute labor or physical toil under the Miller Act and was merely clerical—“And we agree with the district court’s conclusion that, based on this record, taking the final inventory of a job site lacks the ‘physical exertion’ and ‘[b]odily toil’ required to qualify as labor.” Dickson, supra, at *7.

Notably, this case does have an interesting dissent that touches on a discussion that mental toil or mental exertion should constitute labor. Sure, this dissent is not the law. Yet, if you need to create an argument in this regard, this dissent provides the basis to do so.

Estoppel

For the subcontractor to have a valid Miller Act payment bond claim, the surety must be estopped from raising the statute of limitations; otherwise, the lawsuit was untimely filed. But for estoppel to apply, the subcontractor would have to demonstrate it was misled by the surety to its prejudice. Dickson, supra, at *7 (“And in Miller Act disputes, estoppel ‘arises where one party by his words, actuals, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit had passed, breaks off negotiations and denies liability and refuses to pay.’”) Id. (citation omitted).

Unfortunately for the subcontractor, estoppel did not apply. This means the lawsuit was untimely filed!

Here, there was no affirmative indication [the surety] would acknowledge and pay the claim. There were no negotiations or promises to pay. Instead, [the surety] only promised to investigate the claim. Not only did [the surety] not promise to acknowledge and pay the claim, but it repeatedly made clear its communications were for investigative purposes and reserved all rights and defenses.

Dickson, supra, at *8.

Don’t let this happen to you. Timely file your Miller Act payment bond lawsuit.

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.

SUPERINTENDENT’S ON-SITE SUPERVISION COMPENSABLE AS LABOR UNDER MILLER ACT

Posted on February 26, 2023February 26, 2023 by David Adelstein

A recent Miller Act payment bond decision out of the District of Columbia Circuit Court of Appeals, U.S. f/u/b/o Civil Construction, LLC v. Hirani Engineering & Land Surveying, PC, 58 F.4^th 1250 (D.C. Circ. 2023), dealt with the issue of whether a subcontractor’s superintendent constitutes recoverable “labor” within the meaning of the Miller Act and compensable as a cost under the Miller Act that typically views labor as on-site physical labor.

The issue is that the Miller Act covers “[e]very person that has furnished labor or material in carrying out work provided for in a contract.” Civil Construction, supra, at 1253 quoting 40 U.S.C. s. 3133(b)(1). The Miller Act does not define labor. The subcontractor claimed labor includes actual superintending at the job site. The surety disagreed that a superintendent’s presence on a job site constitutes labor as the superintendent has to actually perform physical labor on the job site to constitute compensable labor under the Miller Act.

The subcontractor argued its subcontract and the government’s quality control standards required detailed daily reports that verified manpower, equipment, and work performed at the job site. It further claimed its superintendent had to continuously supervise and inspect construction activities on-site: “[the] superintendent had to be on-site to account for, among other things, hours worked by crew members, usage and standby hours for each piece of equipment, materials delivered, weather throughout the day, and all work performed. These on-site responsibilities reflected the government’s quality control standards, under which the superintendent as ‘the most senior site manager at the project, is responsible for the overall construction activities at the site…includ[ing] all quality, workmanship, and production of crews and equipment.” Civil Construction, supra, at 1253-54.

The DC Circuit Court of Appeals, importantly, looked at how other appellate courts analyzed this issue:

Other courts have taken into account the nature of a superintendent’s oversight responsibilities in concluding that a superintendent’s cost was compensable “labor.” Referencing the trend in other courts, the Eighth Circuit concluded that “the on-site supervisory work of a project manager falls within the purview of the Miller Act if such a superintendent did some physical labor at the job site or might have been called upon to do some on-site manual work in the regular course of his job.” That is,“only 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.’ ” The Eighth Circuit acknowledged that the term labor generally includes physical rather than professional work but distinguished those professionals who superintend on-site as performing labor.

Civil Construction, supra, at 1254 (internal citations omitted).

Based on this, the DC Circuit Court of Appeals, reviewing this issue for the first time, held: “Given that the construction work at issue had to be supervised and inspected for conformance with the subcontract and other requirements, such as government quality control standards, the superintendent’s on-site supervisory work constitutes “labor” within the meaning of the Miller Act.” Civil Construction, supra, at 1254.

If confronted with this issue as to the recovery of an analogous labor cost under a Miller Act payment bond claim, do exactly what the subcontractor did which is to tie the actual superintending, i.e., supervision, to the requirement of the subcontract itself including incorporated documents.

DO NOT FILE A MILLER ACT PAYMENT BOND LAWSUIT AFTER THE ONE-YEAR STATUTE OF LIMITATIONS

Posted on October 8, 2022October 8, 2022 by Edward Garber

Under the Miller Act, a claim against a Miller Act payment bond must be commenced “no later than one year after the date on which the last of the labor was performed or material was supplied by the person bringing the action.” 40 U.S.C. s. 3133(b)(4). Stated another way, a claimant must file its lawsuit against the Miller Act payment bond within one year from its final furnishing on the project.

Filing a lawsuit too late, i.e., outside of the one-year statute of limitations, will be fatal to a Miller Act payment bond claim. This was the outcome in Diamond Services Corp. v. Travelers Casualty & Surety Company of America, 2022 WL 4990416 (5^th Cir. 2022) where a claimant filed a Miller Act payment bond lawsuit four days late. That four days proved to be fatal to its Miller Act payment bond claim and lawsuit. Do not let this happen to you!

In Diamond Services Corp., the claimant submitted a claim to the Miller Act payment bond surety. The surety issued a claim form to the claimant that requested additional information. The claimant returned the surety’s claim form. The surety denied the claim a year and a couple of days after the claimant’s final furnishing. The claimant immediately filed its payment bond lawsuit four days after the year expired. The claimant argued that the surety should be equitably estopped from asserting the statute of limitations in light of the surety’s letter requesting additional information. (The claimant was basically arguing that the statute of limitations should be equitably tolled.) The trial court dismissed the Miller Act payment bond claim finding it was barred by the one-year statute of limitations and that equitable estoppel did not apply.

On appeal, the Fifth Circuit maintained that a party must show it was misled to its detriment when relying on equitable estoppel. The Fifth Circuit held the surety’s letter with its claim form and requesting additional information “made no representations that [the claimant] would be paid or that [the surety] would engage in claim negotiations with [the claimant], and explicitly reserved ‘all rights and defenses…include[ing], without limitation, defenses that may be available under any applicable notice and suit limitation provisions.’” Diamond Services Corp., supra. Hence, it was not reasonable for the claimant to rely on this letter in electing not to timely bring suit within the one-year statute of limitations.

Sureties, as a matter of course, will respond to its receipt of a claim requesting additional information. That letter may accompany the surety’s preferred claim form. Let’s be clear here. The completion of the claim form and furnishing of additional information is not a statutory requirement to pursue a Miller Act payment bond claim (and it’s not a statutory requirement to many statutory bonds). Whether the claim form is submitted, or whether additional information is furnished, does not equate to a surety paying a claim. It just does not. For this reason, there should NEVER be an instance where a claimant forbears its rights to timely sue thinking a surety will pay the claim based on the submission of a claim form or additional information.

Timely file your Miller Act payment bond lawsuit within the one-year statute of limitations. No ifs, ands, or buts. This is true whether you submit a claim form or additional information or you do not.

MILLER ACT PAYMENT BOND SURETY BOUND TO ARBITRATION AWARD

Posted on November 28, 2020November 28, 2020 by Edward Garber

Here is an interesting case binding a Miller Act payment bond surety to an arbitration award against its prime contractor (bond principal) that it received sufficient notice of. Notice is the operative word. The surety could have participated in the arbitration, elected not to, and when its prime contractor (bond principal) lost the arbitration, it was NOT given another bite out of the apple to litigate facts already been decided.

In BRC Uluslararasi Taahut VE Ticaret A.S. v. Lexon Ins. Co., 2020 WL 6801933 (D. Maryland 2020), a prime contractor was hired by the federal government to make security upgrades and interior renovations to a United States embassy in the Czech Republic. The prime contractor hired a subcontractor to perform all of the installed contract work. The prime contractor terminated the subcontractor for default during the course of construction.

The subcontractor demanded arbitration in accordance with the subcontract claiming it was wrongfully terminated. The subcontractor also filed a lawsuit asserting a Miller Act payment bond claim against the prime contractor’s surety (as well as a breach of contract action against the prime contractor). The subcontractor made clear it intended to pursue its claims in arbitration and hold the payment bond surety jointly and severally liable. The parties agreed to stay the lawsuit since the facts were identical to those being arbitrated. The arbitration went forward and an award was entered in favor of the subcontractor and against the prime contractor for approximately $2.3 Million.

The subcontractor moved to lift the stay entered in the lawsuit to confirm the arbitration award against the prime contractor and Miller Act payment bond surety. The prime contractor moved to vacate the award.

Beginning with the prime contractor’s motion to vacate the arbitration award, the Federal Arbitration Act gives limited grounds to support vacating an arbitration award. The grounds the prime contractor raised will not be discussed. They were all denied because it is difficult to vacate an arbitrator’s final award and that is the important take-away message. In support of this (and contained in a noteworthy, lengthy discussion by the Court), the Court stated: “The FAA [Federal Arbitration Act] creates a ‘strong presumption in favor of confirming arbitration awards,’ and ‘judicial review’ of such awards ‘must be an extremely narrow exercise.’” BRC Uluslararasi Taahut, supra, at *4.

Of significance here, the subcontractor moved to enforce the arbitration award against the Miller Act payment bond surety, as it should. Even though the surety was not a party to the arbitration, it was on notice of the arbitration, was notified the subcontractor would look to hold it jointly and severally liable, and the surety consented to the stay of the lawsuit pending the outcome of the arbitration. The Court noted, “[s]uch notice is sufficient to bind [the surety] to the arbitration award.” BRC Uluslararasi Taahut, supra, at *9 (citing cases showing that if the surety has notice of the proceedings against its principal, it can be bound by an arbitration award against the principal). Further, the Court intuitively stated:

[The surety] clearly knew that the arbitration would occur. Now dissatisfied with the outcome, [the surety] wishes not to be bound by the very proceeding [the surety] averred would avoid duplicative litigation. The Court suspects that had [the prime contractor] prevailed in arbitration, [the surety] would be singing a different tune. [The surety] will not be afforded a second bite at the litigation apple simply because it must now honor its obligations as the surety on the project.

Id.

Remember, if you are arbitrating rights, do not neglect to timely file your Miller Act payment bond lawsuit, or for that matter, any statutory payment bond lawsuit. Give the surety NOTICE that you intend to hold it jointly and severally liable for any arbitration award entered against its prime contractor (bond principal). Whether the surety elects to participate in the arbitration is within its discretion, but the key is to give the surety notice so that if you do prevail, you find yourself in same shoes as the subcontractor discussed in this case—binding the payment bond surety to the award entered against the prime contractor. The prime contractor and its surety should also recognize this likely outcome.

QUICK NOTE: MILLER ACT PAYMENT BOND PRESENTATION

Posted on March 27, 2020March 27, 2020 by Edward Garber

Recently, I put on a short presentation on the nuts and bolts of Miller Act payment bonds. You can find the presentation here. The presentation hits on key topics that are important to know for purposes of preserving Miller Act payment bond rights and defending against these types of bond claims.

The presentation was put on for LevelSet that, among other things, helps contractors and suppliers, nationally, preserve and maximize lien, bond, and payment collection rights.

For more in depth information on Miller Act payment bonds, please check out my e-book.

SUIT ON SUBCONTRACTOR’S COMMON LAW PAYMENT BOND

Posted on February 15, 2020February 15, 2020 by Edward Garber

When a subcontractor furnishes a payment bond, is it referred to as a common law payment bond governed by state law. There is no federal statute (or even state statute in most jurisdictions) governing the requirements of a subcontractor’s payment bond, hence the reason it is oftentimes referred to as a common law payment bond. This is different than a prime contractor’s payment bond which is generally governed by federal or state-specific statutes.

In an opinion out of the Northern District of North Dakota, U.S. v. Western Surety Company, 2010 WL 609548 (D. North Dakota 2020), the Court discussed a painting sub-subcontractor’s claim against a subcontractor’s common law payment bond on a federal project. Here, the subcontractor hired the sub-subcontractor and a payment dispute arose. The subcontractor furnished its own payment bond. The sub-subcontractor filed a lawsuit against both the prime contractor’s Miller Act payment bond and the subcontractor’s common law payment bond. The Miller Act payment bond dispute got resolved and the case proceeded as to the subcontractor’s common law payment bond.

The common law payment bond surety moved for summary judgment claiming the painting sub-subcontractor failed to properly trigger the bond because it failed to provide notice of its claim as required by the terms of the bond. Since the bond is deemed a contract, the Court looked at principles of North Dakota contract law governing this argument. The common law bond required a claimant to give written notice within 90 days of its last day of work (which is a common requirement in such bonds). The surety wanted the Court to construe this language similar to the requirements of the federal Miller Act by requiring the sub-subcontractor to give it notice with substantial accuracy of the claim. The Court rejected this sentiment, and denied the summary judgment, as the subcontractor’s payment bond made no mention of “substantial accuracy.” The Court looked at a hodge-podge of communications finding that a reasonable jury could conclude that the painting sub-subcontractor complied with the provisions of the bond. Additionally, the Court noted that even if the notice was inadequate, the surety failed to establish how it was prejudiced based on North Dakota law that states: “A surety is exonerated…[t]o the extent to which the surety is prejudiced by an omission of the creditor to do anything when required by the surety which it is the creditor’s duty to do.” U.S., supra, at *6 (internal quotation and citation omitted).

Lastly, the Court discussed how the subcontractor’s common law payment bond mentions the obligee of the bond is the general contractor. This is how all subcontractor payment bonds are worded. However, within the bond, there is a definition for “claimants” that allows claimants to sue on the bond. The Court addressed this to reflect that the painting sub-subcontractor, meeting the definition of claimant in the payment bond, was a third-party beneficiary of the subcontractor’s payment bond and had standing to sue the bond.

This is a good case if you are dealing with a subcontractor’s common law payment bond. The requirements to sue the bond will be less rigorous than suing a payment bond governed by a statute, such as a Miller Act payment bond.

GOOD-TO-KNOW POINTS REGARDING (I) MILLER ACT PAYMENT BONDS AND (II) PAYMENT BOND SURETY COMPELLING ARBITRATION

Posted on September 22, 2019September 22, 2019 by Edward Garber

Every now and then I come across an opinion that addresses good-to-know legal issues as a corollary of strategic litigation decisions that are questionable and/or creative. An opinion out of the United States District Court of New Mexico, Rock Roofing, LLC v. Travelers Casualty and Surety Company of America, 2019 WL 4418918 (D. New Mexico 2019), is such an opinion.

In Rock Roofing, an owner hired a contractor to construct apartments. The contractor furnished a payment bond. The contractor, in the performance of its work, hired a roofing subcontractor. A dispute arose under the subcontract and the roofer recorded a construction lien against the project. The contractor, per New Mexico law, obtained a bond to release the roofer’s construction lien from the project (real property). The roofer then filed a lawsuit in federal court against the payment bond surety claiming it is entitled to: (1) collect on the contractor’s Miller Act payment bond (?!?) and (2) foreclose its construction lien against the lien release bond furnished per New Mexico law.

Count I – Miller Act Payment Bond

Claiming the payment bond issued by the contractor is a Miller Act payment bond is a head scratcher. This claim was dismissed with prejudice upon the surety’s motion to dismiss. This was an easy call.

A Miller Act payment bond is a bond a prime contractor gives to the United States (US) for a public project. Here, the contractor entered into a contract with a private developer for a private apartment project. There was nothing to suggest that the private developer was, in fact, the US government or an agent of the US government. There was also nothing to suggest that the apartment project was, in fact, a public project. The roofer alleged that it believed the US Department of Housing and Urban Development provided funding for the project. The Court found this allegation as a big so-what: “The Court finds this allegation insufficient to demonstrate either the payment bond was furnished to the [US] Government as required by the [Miller Act], or that the apartment complex was a public building or public work as required by the [Miller Act].” Rock Roofing, LLC, 2019 WL at *3.

Count II – Foreclosure of Construction Lien Against Lien Release Bond

The surety moved to compel the roofer’s foreclosure claim against the lien release bond to arbitration pursuant to the contractor’s subcontract with the roofer. The roofer countered that arbitration was inappropriate since the surety was not a party to the subcontract.

The Court (relying on a Florida district court opinion I was intimately involved with) found that the doctrine of equitable estoppel applied to compel the roofer to arbitration because the roofer’s claim for payment was based on its subcontract that contains the arbitration provision. “Because [the roofer’s] claim on the payment bond depends on its subcontract with [the contractor], the arbitration clause in the subcontract must precede [the roofer’s] right to bring suit as provided by the payment bond.” Rock Roofing LLC at *7.

VENUE FOR MILLER ACT PAYMENT BOND WHEN PROJECT IS OUTSIDE OF US

Posted on September 1, 2019September 1, 2019 by Edward Garber

The proper venue for a Miller Act payment bond claim is “in the United States District Court for any district in which the contract was to be performed and executed, regardless of the amount in controversy.” 40 U.S.C. s. 3133(b)(3)(B).

Well, there are a number of federal construction projects that take place outside of the United States. For these projects, where is the correct venue to sue a Miller Act payment bond if there is no US District Court where the project is located? A recent opinion out of the Southern District of Florida answers this question.

In U.S. ex. rel. Salt Energy, LLC v. Lexon Ins. Co., 2019 WL 3842290 (S.D.Fla. 2019), a prime contractor was hired by the government to design and construct a solar power system for the US Embassy’s parking garage in Burkina Faso. The prime contractor hired a subcontractor to perform a portion of its scope of work.

The subcontractor remained unpaid in excess of $500,000 and instituted a Miller Act payment bond claim against the payment bond surety in the Southern District of Florida, Miami division. The surety moved to transfer venue to the Eastern District of Virginia arguing that the Southern District of Florida was an improper venue. The court agreed and transferred venue. Why?

Initially, because the project is outside of the US, the subcontractor could NOT sue the surety where the project is located. Under the Miller Act, the venue provision was enacted for the benefit of the prime contractor and surety and, therefore, “the final site of the government project is dispositive of the [venue] matter.” US ex. rel. Salt Energy, LLC, 2019 WL at *4 (rejecting the subcontractor’s argument that venue for a Miller Act payment bond claim can be at a venue independent of jobsite activities.)

Therefore, to determine the appropriate venue provision (as the venue set forth under the Miller Act would be inapplicable to a project outside of the US), the Court had to look at general venue standards governing federal courts. The Court adopted the general venue provision in 28 U.S.C. s. 1391 finding that appropriate venue would be “wherever any defendant resides or wherever a substantial part of the events or omissions giving rise to the claim occurred.” U.S. ex. rel. Salt Energy, LLC, 2019 WL at *4.

The surety resided in Tennessee. However, the surety did not attempt to transfer the case to an applicable District Court in Tennessee, but instead, moved to transfer to the Eastern District of Virginia. The surety argued, and the Court agreed, that the Eastern District of Virginia is appropriate because this is where the government executed the prime contract, where the awarding agency is located, where invoices were sent, and where the prime contractor submitted deliverables. The subcontractor countered that a substantial portion of its work occurred in the Southern District of Florida where it is located, making the Southern District of Florida an appropriate venue. Unfortunately for the subcontractor, the Court was not buying this argument because the activities the subcontractor claimed it performed in the Southern District of Florida were in relation to its subcontract, not the prime contract, and were largely administrative or ministerial in nature – substantial performance did not occur in the Southern District of Florida.

The surety would have been able to transfer venue to the appropriate district court in Tennessee (where it resided) or Virginia (where a substantial part of the events giving rise to the claim at issue took place).

The subcontractor’s argument to keep venue in the Southern District of Florida was a worthy argument. However, the Court perceived many of the activities the subcontractor performed in the Southern District (coordinating, billing, phone calls, etc.) were not a substantial part of the events giving rise to the claim. The Court was more focused on activities in relation to the prime contract, and because the prime contract and awarding agency were in the Eastern District of Virginia, that was a more appropriate venue.

Venue is an important consideration in any dispute, including a Miller Act payment bond dispute when a foreign project is involved and the venue provision in the Miller Act does not apply.

SUBCONTRACTOR’S MILLER ACT PAYMENT BOND CLAIM

Posted on August 31, 2017August 31, 2017 by Edward Garber

Since 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).

MILLER ACT CLAIM FOR UNSIGNED CHANGE ORDERS

Posted on June 25, 2016June 25, 2016 by Edward Garber

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.