Construction Law Insights

United States v. John C. Grimberg Co., 2017 U.S. Dist. LEXIS 173362, 2017 WL 4698217 (E.D. Va. Oct. 19, 2017)

A subcontractor sued the prime contractor and the contractor’s surety to recover payment for work performed on a federal construction project, including costs incurred as a result of a delay not attributable to the subcontractor’s performance. After the action was filed, prime contractor paid the subcontractor for work performed but not for costs incurred due to delay. The subcontractor then sought partial summary against the surety for its delay damages.

In 2012, the United States Department of the Navy (“Government Owner”) awarded a contract to general contractor John C. Grimberg Co., Inc. (“Prime Contractor’) to handle improvements on a building at the FBI Academy. Hartford Accident and Indemnity (“Surety”) served as the Prime Contractor’s surety for the project, issuing payment and performance bonds pursuant to the Miller Act. The Prime Contractor subcontracted with Kitchens-to-Go (“Subcontractor”) to provide a temporary kitchen facility during the course of the project. The subcontract contained a “no-damages-for-delay” clause, which provided that the Prime Contractor could not be held liable for delays beyond its control.

Due to start date delays and other extensions, the project was delayed roughly four months. The Government Owner refused to compensate Prime Contractor for costs related to the delay. On August 2, 2016, the Subcontractor submitted an Application for Payment to the Prime Contractor and filed a complaint for breach of subcontract and under the Miller Act against the Surety for recovery of the total amount due. The Subcontractor’s motion for summary judgment asserted that the Surety was not entitled to enforce a no-damages-for-delay clause under the Miller Act. 

The court concluded that the Surety was not able to rely on the Subcontract’s no-damages-for-delay clause to avoid Miller Act liability. Further, the Surety could only enforce contract terms to limit its Miller Act liability if those terms are consistent the Act itself.

In this case, the subcontract clause contradicted the plain statutory text of the Miller Act, which requires payment within 90 days from the last day work or services were provided, or then a payment bond can be served on the prime contractor. The no-damages-for-delay clause also does not waive the 90-day condition on a suit on the payment bond. The court held that the intent behind the Miller Act was to provide government subcontractors with a method for collecting payments owed to them, given the fact they are unable to file mechanics liens on a government project. Therefore, the subcontract cannot eliminate or delay the right to payment unless it does so in a manner consistent with the terms of the Miller Act.

The Surety could not rely on the dispute resolution provision of the contract between Prime Contractor and Government Owner because to do so would further delay the claim under the Miller Act. Just like the no-damages-for-delay provision in the subcontract, the dispute resolution provision did not serve as a waiver under the Miller Act because the provision was executed before the Subcontractor provided work on the project and before delay costs incurred. 

The court granted the Surety’s Rule 56(d) request to defer its ruling on summary judgment regarding the amount of delay damages, because the Surety by affidavit stated that it could not present facts essential to justify its opposition to the Subcontractor’s motion on this issue.

PLDR Law Mark Burgin 1 PLDR Law Scott Kowalski 1 Wolf Tom v2 Stout Kenneth 2016

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