Payment Bonds Under the Miller Act

Last week we briefly discussed the Miller Act and performance bonds.  A payment bond is different from a performance bond in that it provides a form of collateral for unpaid subcontractors and material suppliers who provide labor and/ or materials on federal construction projects.   Because these downstream subcontractors and material suppliers do not have lien rights on governmental projects, the payment bond works as a substitute for lien rights over real property.  The payment bond effectively stands in place of the real property for purposes of security

The primary public policy purpose of the Miller Act payment bond is to replace the security normally provided by the lien right which attaches to real property.  Instead of foreclosing on the mechanics lien, a claim or suit on the bond is made.

Our next discussion will focus on the Miller Act in South Carolina.

 

 

The Miller Act and Performance Bonds

The Miller Act, 40 U.S.C. §§ 3131–3134, provides that, before any contract for the construction, alteration, or repair of any public building or public work of the United States of more than $150,0…

Source: The Miller Act and Performance Bonds

The Miller Act and Performance Bonds

The Miller Act, 40 U.S.C. §§ 3131–3134, provides that, before any contract for the construction, alteration, or repair of any public building or public work of the United States of more than $150,000 (increased fris awarded to any person, that person (usually the general contractor) must furnish:

(1) A performance bond in an amount the contracting officer considers adequate for the protection of the United States;

The United States and federally created bodies such as GSA are the beneficiaries of the performance bond piece.  If an awarded prime contractor defaults in the performance of its work or is terminated for cause, the United States may turn to the surety to step in and take over the general contractor’s obligations under the prime contract.  Bond language allows the surety to bring another qualified entity to finish the work, at the surety’s expense on behalf of citizens.

 

The Miller Act: An Introduction

The Miller Act is codified at 40 U.S.C. §§ 3131-3134.  The Act requires a general contractor contracting with the federal government or a federal governmental entity for a construction project with a contract in excess of $150,000 to obtain both a performance bond and a payment bond.

The Miller Act’s primary function is to foster construction and development in the public sector, while protecting infrastructure and public projects from the potential lien rights of material suppliers and subcontractors.

Miller Act v. Mechanics Lien

When a subcontractor is not paid for labor or materials furnished to a prime contractor in a private construction contract, the aggrieved party is normaly able to seek recourse if not paid by taking out a mechanic’s lien against the property. However, the doctrine of sovereign immunity prohibits a lien being taken out against any public property, and this applies to construction contracts awarded by the federal government.

To afford subcontractors a form of redress, Congress enacted the Miller Act (40. U.S.C.A. § § 3131 and 3133).   In our next installment we will discuss specific details covered by the Act including the distinctions between a payment bond and performance bond.

If interested in this topic, please see next post on performance bonds.

 

 

 

 

 

Mississippi Arbitration Proceeding and Judicial Estoppel in a similar US District Court Suit

What happens when one party to an arbitration no longer remains solvent, yet a successor entity remains viable, although not a party to an arbitration proceeding?  Mississippi recently decided that a separate action could be brought in US District Court against the non-contracting successor entity which was not barred by judicial estoppel.

Brief Facts

In 2009, RDS contracted with S&S Construction LLC to construct a building in Ocean Springs, Miss. The occupant, RDS, alleged there were problems with the roof leaking.

In 2011, contractor S&S Construction changed its name after being purchased by Abrams Group.  It was a subject of some debate as to whether or not S&S was doing business under the new name or, alternatively, no longer in existence.

ARBITRATION ACTION AGAINST S&S

RDS, as owner of the building, brought suit against S&S Construction as well as the successor, Abrams.   The suit was dismissed in favor of an arbitration clause and Abrams refused to consent, claiming it was not obligated as the contract containing the provision was with S&S Construction.  RDS was successful in the arbitration action against S&S and subsequently awarded over $200,000 which remains to be paid.   S&S has made claims of being insolvent.

DECLARATORY RELIEF

Upon learning of S&S insolvency, RDS initiated a declaratory judgment action against Abrams and S&S seeking authority from the court that S&S and Abrams each be subject to the arbitration provision under successor liability.  Abrams sought to have the action barred under the theory of judicial estoppel, arguing that RDS had already attempted to fight the dispute in arbitration, and was now changing theories and strategy for purposes of maneuvering.

The Court found that RDS could proceed and its behavior was not inconsistent.

“RDS not only has asserted that Abrams and S&S are the same entity, but also has raised alternative arguments for liability based on successor liability, merger, and other theories, which is consistent with its assertions in the 2014 action. In short, it appears that RDS’s position has always been that S&S and Abrams are responsible for its damages. RDS’s decision to pursue S&S only in the previous action and to dismiss Abrams without prejudice in response to Abrams’ argument that it was not a signatory to the arbitration agreement at issue does not preclude it from making the claims it makes here and does not equate to asserting a legal position which is plainly inconsistent with a prior position.”

RDS Real Estate LLC v. Abrams Group Construction LLC, et al., No. 15-cv-361-LG-RHW, S.D. Miss.; 2016 U.S. Dist. LEXIS 125652

Harper Whitwell PLLC to handle litigation all over the Southeast

img_1180I very recently joined my friends at Harper Whitwell PLLC as a partner in the firm’s new Charleston SC office.   Harper Whitwell is based in Oxford, MS having been founded by James Harper and Quentin Whitwell.   With the addition of Charleston, the firm now has enhanced geographical coverage to include Alabama, Mississippi, South Carolina, Tennessee and the District of Columbia.

The firm will continue to handle commercial litigation, employment claims, health care law, construction matters and general torts.    The firm’s attorneys also provide consultation to a number of strategic industries including, but not limited to the following:

•  Contract Negotiation

• Risk Mitigation

• General business consultation

 

 

Update on California Strict Liability Decision

Back in April, I reported to you a curious decision from California which applied the doctrine of strict liability to a contractor who merely applied, or installed, a defective or dangerous product.  California Strict Liability  We discussed the decision’s application to South Carolina a month or so later.  South Carolina and Strict Liability 

Upon revisiting the issue, this blog is quite late in reporting to you that the California appellate decision which held E.F. Brady strictly liable during December, 2015 seems to have been vindicated as the Supreme Court denied cert. during March 2016.

The issue is open and currently undisturbed.   We will see if this decision is limited to an asbestos, or human safety context or, alternatively, widely construed to impose liability on any and all contractors who unknowingly use a defective product.