CONDITIONAL PAYMENT BOND CONSIDERATION-MAKE SURE THERE IS PAY-IF-PAID PROVISION

Posted on June 14, 2026June 14, 2026 by David Adelstein

If a general contractor is going to have a conditional payment bond, it needs to ensure it subcontracts contain pay-if-paid or pay-when-paid provisions. This conditional payment language in subcontracts is the general contractor’s defense that it doesn’t have to pay a subcontractor UNTIL owner has paid the general contractor for the subcontractor’s work.

The general contractor (and the surety) can look at the conditional payment bond with the s. 713.245 legend stamped on its face designating the conditional nature of the bond, and assume the conditional structure is locked in against the bond: no payment from the owner, no obligation to the subcontractors under the bond. But what happens when the subcontracts contain no express conditional payment language despite having a valid conditional payment bond?

In North American Specialty Insurance Co. v. Hughes Supply, Inc., 705, So.2d 616 (Fla. 4th DCA 1998), the Fourth District Court of Appeals made clear that the statutory conditional payment bond legend stamped on the top of the bond means NOTHING without a valid pay-if-paid (or pay-when-paid) clause to back it up. The general contractor obtained a conditional payment bond. Unpaid subcontractors sued the owners, contractor, and the payment bond surety. The payment bonds contained the conditional payment bond legend specified in section §713.245.

The Court affirmed that the mere presence of the section s. 713.245 conditional payment bond legend on the bond does not require application of section s. 713.245 when the contract between the contractor and the subcontractor does NOT contain express conditional payment language (i.e., pay-if-paid or pay-when-paid).

Thus, as a general contractor, if relying on a conditional payment bond, make sure that conditional payment language is included in your subcontracts to ensure the risk is shifted downstream when it comes to payment bond claims. Otherwise, the conditional payment bond could be on the hook even if the owner has not paid defeating the conditional nature of the bond.

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.

ALERT: FRAUDULENT NOTICE OF NONPAYMENT DEFENSE APPLIES TO PAYMENT BOND CLAIMS

Posted on April 3, 2026April 3, 2026 by David Adelstein

Under Florida’s Lien Law, there’s an affirmative defense or affirmative claim known as a “fraudulent lien.” The fraudulent lien defense or claim is set out in Florida Statute s. 713.31. This defense also extends to payment bond claims, whether under a private statutory payment bond (Florida Statute s. 713.23) or a public payment bond (Florida Statute s. 255.05), as it pertains to the notice of nonpayment. A notice of nonpayment needs to be served within 90 days from final furnishing to preserve a claimant’s rights against the bond. However, there really has not been a case, until now, that discusses a “fraudulent notice of nonpayment.”

In K&M Electric Supply, Inc. v. Brown Electrical Solutions, LLC, 51 Fla.L.Weekly D672a (Fla. 4^th DCA 2026), a prime contractor and surety prevailed at the trial level on their fraudulent notice of nonpayment defense based on a supplier’s notice of nonpayment and action against a public payment bond (under Florida Statute s. 255.05).

A fraudulent notice of nonpayment defense is as follows:

A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond.

K&M Electric Supply quoting Fla.Stat. s. 255.05(2)(a)(2).

The prime contractor and its surety argued the notice of nonpayment was fraudulent because (1) the supplier’s claim of nonpayment was significantly higher than the subcontract of the subcontractor (that procured the materials); (2) the claim and notice contained legal fees and charges not allowed to be claimed: and (3) the claim and notice contained items not covered by the subcontract or fell outside of the scope of the subcontract. The trial court found the notice of nonpayment and payment bond claim fraudulent. The appellate court affirmed, with a worthy discussion as to why it was affirming that the notice of nonpayment and payment bond claim were fraudulent:

[S]ection 255.05(2)(a)2. says a claim is fraudulent if the claimant does any one of three things: (1) willfully exaggerated the amount unpaid, (2) willfully included a claim for work not performed or materials not furnished for the subject improvement, or (3) prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. § 255.05, Fla. Stat. (2022); see Sprinkler Fitters & Apprentices Local Union No. 821, U.A. v. F.I.T.R. Serv. Corp., 461 So. 2d 144, 151 nn. 3, 6 (Fla. 3d DCA 1984) (noting “Section 255.05, Florida Statutes[ ] was patterned after the Miller Act . . . and relied on cases decided under this federal counterpart,” and explaining that under the Miller Act, “[a]ny lien asserted . . . in which the lienor has willfully exaggerated the amount for which such lien is claimed . . . or in which the lienor has compiled his claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”). Section 255.05(2)(a)2. also says that “a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond.” Id.

Here, [supplier] did not, before noticing the bond claim, conduct any investigation whatsoever into the amount it was actually entitled to claim on the bond, which is the amount of materials “actually incorporated” into the project. Aquatic Plant Mgmt., Inc., 977 So. 2d at 603. [Supplier] instead claimed every dollar billed to the project by [the subcontractor that hired it]. Of the roughly $123,000 claimed, only about (at most) $56,000 was actually incorporated into the project and therefore properly subject to the claim.

Accordingly, the third prong of the fraudulent lien test — that the claimant “prepared the notice with such willful and gross negligence as to amount to a willful exaggeration” — is met given the undisputed record in this case. No reasonable trier of fact could find otherwise: “the combined body of evidence presented by the two parties relevant to the material fact” is such that Appellees “would be entitled to a directed verdict at trial.” Fitzpatrick, 2 F.3d at 1116. And no reasonable trier of fact could find the error — the bulk of the claim — was “a minor mistake.”

Multiple errors existed in the notice — claiming (1) disallowable expenses, (2) items not within the subcontract’s scope, (3) an amount above the entirety of the subcontract’s value, and (4) items that were not “actually incorporated” into the project. Perhaps any of these errors could have, standing alone, led to some genuine dispute of material fact about whether the notice was prepared with such willful and gross negligence as to amount to a willful exaggeration, or to a genuine dispute about whether the errors were a “minor mistake.”

But the upshot of this case is that without even the most basic investigation as to what [supplier] was entitled to claim, [supplier] claimed $123,000 on a bond that it now acknowledges could pay out, at most, about $56,000. The trial court did not err in finding that the more than 100% discrepancy met prong (3) of the “fraudulent” test. That discrepancy was not a “minor mistake.” It was gross negligence. Given the record in this case, the claim was “fraudulent” as a matter of law.

K&M Electric Supply, supra.

Whether fair or unfair, the issue largely focused on the fact that the supplier could not prove the materials were actually incorporated into the project. And, very little due diligence was done to confirm this important point before serving the notice of nonpayment.

FORUM SELECTION PROVISIONS ARE NOT TO BE OVERLOOKED…EVEN ON FEDERAL PROJECTS

Posted on August 17, 2024August 17, 2024 by David Adelstein

Forum selection provisions are NOT to be overlooked. Ever. Treat them seriously. Even on federal projects where there is a Miller Act payment bond. Consider forum selection provisions on the front end when negotiating your contract.

In a recent opinion, U.S. f/u/b/o Timberline Construction Group, LLC vs. Aptim Federal Services, LLC, 2024 WL 3597164 (M.D.Fla. 2024), a joint venture prime contractor was hired by the federal government to build a temporary housing site. The joint venture prime contractor obtained a Miller Act payment bond. The joint venture then entered into a subcontract with one of its joint venture members and the member-subcontractor then engaged a sub-subcontractor. The sub-subcontractor claimed it was owed $3.5 Million and sued the member-subcontractor, as well as the prime contractor’s Miller Act payment bond, in the Middle District of Florida. The member-subcontractor and the Miller Act payment bond sureties moved to transfer venue to the Middle District of Louisiana pursuant to a forum selection clause in the contract between the sub-subcontractor and the member-subcontractor. The contract provided that the exclusive venue would be a United States District Court located in Louisiana.

Forum selection provisions are analyzed in federal court under 28 U.S.C. 1404(a): “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” U.S. f/u/b/o Timberline, supra at *2. A forum selection provision is presumptively valid and given controlling weight. Id. (quotations and citations omitted).

The sub-subcontractor argued that venue was appropriate in the Middle District of Florida under the Miller Act. The sub-subcontractor was correct in this regard. But, as the District Court maintained, “binding precedent directs us to give the forum-selection clause the same fore we would generally give it in any other civil action. This is so because the Miller Act’s venue provision is ‘merely a venue requirement’ and not jurisdictional.” U.S. f/u/b/o Timberline, supra, at *2. And as often the case, private contracting parties can agree to litigate Miller Act claims in other venues based on their agreed-upon forum selection provision. Id.

While the District Court agreed with the sub-subcontractor that Florida has an interest in having a local controversy resolved in its courts which weighs against transfer, the District Court found: (1) a Miller Act claim deals with a federal question and courts routinely apply laws of other jurisdictions to resolve breach of contract claims; (2) Louisiana judges could resolve this dispute no different than Florida judges; and (3) the sub-subcontractor cannot show the case would unfairly burden Louisiana citizens with jury duty. This is important because the sub-subcontractor bore the heavy burden in demonstrating that transferring the case to the forum per the forum selection provision is unwarranted. The sub-subcontractor could not carry this burden.

JUDICIAL ECONOMY DISFAVORS ENFORCEMENT OF MANDATORY FORUM SELECTION CLAUSE

Posted on November 25, 2023November 25, 2023 by David Adelstein

Mandatory forum (venue) selection provisions are generally construed in favor of enforceability. Parties agreed to the forum for disputes so why not enforce them, right? A recent federal district court case out of the Eastern District of Louisiana exemplifies an exception grounded in judicial economy which disfavors the enforceability of mandatory forum selection provisions. Keep in mind that this judicial economy exception is fairly limited but the fact pattern below demonstrates why enforcing the mandatory forum selection provision was disfavored due to judicial economy.

In U.S. f/u/b/o Exposed Roof Design, LLC v. Tandem Roofing, 2023 WL 7688584 (E.D.La. 2023), a sub-subcontractor filed a Miller Act payment bond lawsuit against the prime contractor and the prime contractor’s Miller Act payment bond sureties. The sub-subcontractor also sued the subcontractor that hired it. However, the sub-subcontractor’s subcontract with the subcontractor included a mandatory forum selection provision in a different form. The subcontractor moved to sever and transfer the sub-subcontractor’s claims against it to the forum agreed upon in the subcontract. The trial court denied the severance and the transfer. Below are the reasons.

First, the prime contractor and the Miller Act payment bond sureties were NOT parties to the subcontract. Therefore, they were not bound by the forum selection provision in the subcontract. The trial court, going through factors regarding severance, explained, “[Sub-subcontractor’s] breach of contract and quantum meruit claims against [subcontractor] arose out of the same events that gave rise to [sub-subcontractor’s] Miller Act claims against [the prime contractor and prime contractor’s Miller Act payment bond sureties]. All of the claims arise from Defendants’ alleged failure to pay [sub-subcontractor] for work it performed on the Project.” Tandem Roof Design, supra, at *7.

Second, the trial court found that the “elements of a Miller Act claim share similar elements to the breach of contract and quantum meruit claims.” Tandem Roof Design, supra, at *7. In other words, the sub-subcontractor’s Miller Act payment bond claim against the prime contractor and Miller Act payment bond sureties were “inextricably intertwined” with the sub-subcontractor’s claims against the subcontractor that hired it. See id.

Third, the trial court maintained, “judicial economy would be undermined with two similar cases proceeding in two federal district courts. If the state law claims were transferred, this Court would either have to stay the case here while [sub-subcontractor] and [subcontractor] determine how much is owed to [sub-subcontractor] or proceed with duplicate proceedings to determine [subcontractor] and the other Defendants’ liabilities to [sub-subcontractor].” Tandem Roof Design, supra, at *7.

Fourth, the trial could expressed that the “non-signatory Defendants may face prejudice if the claims against [subcontractor] were to proceed [in a different forum] without them. If [the] claims against the non-signatory Defendants were stayed in this Court, while claims against [subcontractor] proceeded in [the different forum], that court would determine the amount [subcontractor] owes to [sub-subcontractor], but then non-signatory Defendants may ultimately be held liable to [sub-subcontractor] for repayment of that amount under the Miller Act in this Court.” Tandem Roof Design, supra, at *8.

And, fifth, the trial court noted that, “the same witnesses and documents would like be presented to prove each of the claims.” Tandem Roof Design, supra, at *8.

For these five reasons, the trial could held that although the mandatory forum selection clause in sub-subcontractor’s subcontract with subcontractor favored severance and transferring venue to the forum per the clause, judicial economy, on the other hand, disfavored the severance and transfer, meaning judicial economy disfavored enforcing the mandatory forum selection provision.

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.

FLORIDA’S NEW CIVIL REMEDIES ACT – BULLETPOINTS AS TO HOW IT IMPACTS CONSTRUCTION

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

There has been much talk about Florida’s new Civil Remedies Act (House Bill 837) that Governor DeSantis approved on March 24, 2023. As it pertains to construction, here is how I see it with key bulletpoints on the impact this new Act has on the construction industry:

New Florida Statute s. 86.121– This is an attorney’s fees statute for declaratory relief actions to the prevailing insured to determine insurance coverage after TOTAL COVERAGE DENIAL. (Note: A defense offered pursuant to a reservation of rights is not a total coverage denial.) This right only belongs to the insured and cannot be transferred or assigned. And the parties are entitled to the summary procedure set forth in Florida Statute s. 51.011 requiring the court to advance the cause on the calendar. The new statute does say it does NOT apply to any action arising under a residential or commercial property insurance policy. (Thus, since builder’s risk coverage is a form of property insurance, the strong presumption is this new statute would not apply to it.) Rather, the recent changes to Florida Statute s. 626.9373 would apply which provides, “In any suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.”

Florida Statute s. 95.11 – The statute of limitations for negligence causes of action are two years instead of four years. This applies to “causes of action accruing after the effective date of this act.”

Florida Statute s. 624.155 – Adds language relative to bad faith insurance claims including bad faith claims asserted under the common law.

Florida Statute 768.81 – Includes a greater percentage of fault section in the comparative negligence statute that states, “In a negligence action to which this section applies, any party found to be greater than 50 percent at fault for his or her own harm may not recover any damages. This subsection does not apply to an action for damages for personal injury or wrongful death arising out of medical negligence pursuant to chapter 766.”

Florida Statute s. 627.428– This statute was repealed. This was the attorney’s fees statute for insurance disputes.

Florida Statute s. 627.756 – This modified the language in this statute but still provides in a suit by an owner, contractor, a subcontractor, a laborer, or materialman against a surety under a payment or performance bond, if the claimant prevails, it can recover reasonable attorney’s fees for prosecuting the suit.

“This act shall not be construed to impair any right under an insurance contract in effect on or before the effective date of this act. To the extent that this act affects a right under an insurance contract, this act applies to an insurance contract issued or renewed after the effective date of this act.”

Please feel free to reach out to me if you view this Act differently.

SURETY’S SEVERAL LIABILITY UNDER BONDS

Posted on March 5, 2023March 5, 2023 by David Adelstein

When a payment or performance bond is issued on behalf of its bond-principal, the surety is jointly and severally liable with its bond-principal. This means the surety has several liability under the bond, i.e., you don’t need to pursue the principal of the bond to pursue liability under the bond, which is a separate written intrument. Thus, if you are claiming damages of $500,000, by way of example, you can sue both the principal and surety under the bond, you can ONLY sue the principal under the bond (which is rarely practical), or you can ONLY sue the surety under the bond (which, oftentimes, is very practical). In many instances where I am pursuing a bond claim on behalf of a client, particularly a payment bond claim, I only sue the surety and do not sue the bond-principal unless there are certain strategic reasons in doing so. This is because of the surety’s several liability under the bond and there may be solvency issues with the principal or contractual reasons that, strategically, make much more sense to exclude the principal from the action.

In MJM Electric, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2023 WL 2163087 (M.D.Fla. 2023), an electrical subcontractor was hired to perform electrical work by the prime contractor. The prime contractor had a payment bond. The project was delayed for two years. The electrical subcontractor claimed the prime contractor failed to compensate it for significant delays and out of scope work.

The electrical subcontractor sued the prime contractor’s payment bond surety ONLY for amounts it incurred in the performance of the subcontract. The surety moved to require the subcontractor to join the prime contractor into the lawsuit as an indispensable party.

The purpose of this posting is not to go into the federal procedural analysis to determine an indispensable party. The point is to establish that such a position in many instances makes minimal sense when considering that the surety is severally liable, the prime contractor can always intervene into the lawsuit, and the surety can always pursue the prime contractor for indemnity under the general agreement of indemnity between the surety and bond-principal. In denying the surety’s motion, the Middle District of Florida expressed:

Though [electrical subcontractor] may have claims against [prime contractor] under its contract, those claims are separate from the claims under the bond against [surety] and any judgment against [surety] under the separate terms of the bond contract would not affect those claims. Likewise, [surety] may seek indemnification or any other claim it may have against [prime contractor], but failure to join [prime contractor] here does not prevent full relief for [electrical subcontractor] under the bond nor does it expose [surety] to duplicate or inconsistent liability. Of course, any judgment in this action would not bind [prime contractor] and so would not affects its rights.

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 STATUTE OF LIMITATIONS AND EQUITABLE TOLLING

Posted on June 4, 2022June 4, 2022 by Edward Garber

When it comes to a Miller Act payment bond claim, there is a one-year statute of limitations—“The Miller Act contains a statute of limitations provision that requires actions to ‘be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the claim.’” U.S. f/u/b/o Techniquex Specialty Flooring, Inc., v. Philadelphia Indemnity Ins. Co., 2022 WL 169070, *3 (M.D.Penn. 2022) (citing the Miller Act).

There is an argument, albeit a difficult one, to support an equitable tolling of the one-year statute of limitations. This would be an argument filed when the one-year statute of limitations expires, but there is reason for missing the statute of limitations caused typically by the overt misleading of the defendant (surety/bond-principal):

“Equitable tolling functions to stop the statute of limitations from running where the claim’s accrual date has passed.” “Equitable tolling is appropriate in three situations: (1) when the defendant has actively misled the plaintiff respecting the facts which comprise the plaintiff’s cause of action; (2) when the plaintiff in some extraordinary way has been prevented from asserting his rights; and (3) when the plaintiff has timely asserted his rights in the wrong forum.” The first ground for equitable tolling“appears to be the same, in all important respects” to equitable estoppel, which “excuses late filing where such tardiness results from active deception on the part of the defendant” and “what courts describe as ‘equitable tolling’ is encompassed by the latter two parts of our Circuit’s doctrine.” The extraordinary circumstances standard may be met “where the defendant misleads the plaintiff, allowing the statutory period to lapse; or when the plaintiff has no reasonable way of discovering the wrong perpetrated against her …”

Tehniquex, supra, at *5 (internal citations omitted).

If you are involved on a federal project, it is imperative that you appreciate your Miller Act payment bond rights. This includes knowing when your last date of furnishing is as well as your last date to file a Miller Act payment bond lawsuit. While equitable tolling is an argument if the statute of limitations expires, it is admittedly a very difficult argument to prevail on and will require evidence substantiating the basis for the equitable tolling. Otherwise, you are just a party that missed the deadline to file a Miller Act payment bond claim, and in most occasions, there is really no justifiable reason for this to be the situation.