By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC

Before any contract of more than $100,000.00 is awarded for the construction, alteration or repair of any public building or public work of the Federal Government, a payment bond must be furnished to the Government, which becomes binding when the contract is awarded. Such bond is known as a Miller Act Bond.
The case of W.W. Gay Mechanical Contractor, Inc. v. Walbridge Aldinger Company, 2013 WL 5859456 (11th Cir. 2013), involves a dispute between a Subcontractor and a general contractor (“Contractor”), together with the Contractor’s sureties, over a construction project for the Navy (“Owner”).  The Subcontractor asserted a Miller Act claim for unpaid amounts due under the subcontract, consisting of $109,177.00 for extra work and $251,937.92 for retainage.  The Contractor argued that it was entitled to withhold payment from the Subcontractor because the Owner assessed liquidated damages against the Contractor for delays in the completion of the project, for which the Subcontractor was partly responsible, and which exceeded the amount owed to the Subcontractor.

During the litigation, the Court partially granted the Subcontractor’s motion for summary judgment on its claim against the Contractor’s Miller Act Bond and breach of contract claim, ruling that the Subcontractor was entitled to payment for the unpaid retainage and extra work.  The Contractor and its sureties appealed the partial summary judgment in favor of the Subcontractor.
The purpose of the Miller Act is to protect subcontractors supplying labor and materials on federal projects by requiring contractors to post a bond to ensure payment to their subcontractors.  To establish a claim against a Miller Act Bond, the Subcontractor must show: (1) that it supplied labor and materials for work in the particular contract at issue; (2) that it is unpaid; (3) that it had a good faith belief that the labor and materials were for the specified work; and(4) that jurisdictional requisites are met.  To establish a breach of contact claim, the Subcontractor must show that (1) there was a valid contract; (2) the Contractor beached the contract; and (3) it suffered damages as a result of the Contractor’s breach.

One of the issues the appellate court considered was whether the Contractor was entitled to withhold payment from the Subcontractor because of the liquidated damages assessed by the Owner against the Contractor.  The Contractor argued that it did not breach its subcontract with the Subcontractor and was not liable for any “amount unpaid” under the Miller Act because the Subcontractor did not timely complete its work, which resulted in the Owner assessing liquidated damages against the Contractor, and the Contractor was entitled to offset these damages against the amount owed to the Subcontractor.  In support of this argument, the Contractor relied on the terms of the subcontract providing that the Contractor can withhold payment to the Subcontractor for any breach of the subcontract, that “time . . . is of the essence”, and the Subcontractor may be liable for liquidated damages if it fails to prosecute the Work, thereby causing delay in the Project.

The Subcontract between the Contractor and Subcontractor provided in pertinent part that the Subcontractor is liable for liquidated damages if its “failure to prosecute the Work . . . causes delay in the progress of the Project.”  The Court determined that the Contractor did not offer any evidence that the Subcontractor was responsible for the liquidated damages that the Owner assessed, or for any other injury to the Contractor. Therefore, the Court held that the Contractor was not entitled to withhold payment from the Subcontractor for the labor and materials that it indisputably provided under the subcontract.

This case demonstrates the elements of a claim against a Miller Act Bond, and that a contractor will be precluded from withholding payment from a subcontractor for untimely performance if it fails to present evidence that the subcontractor substantially delayed the completion of the project.

About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].

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