Payment claims on federal construction projects often involve bond claims governed by the Miller Act. 40 U.S.C.§ 3131. General contractors on these construction projects must furnish a payment bond. The bond protects certain persons/entities supplying labor and materials, and carrying out work on the project. You cannot require a party to waive its Miller Act bond claim in advance. However, there are contractual ways for contractors to stay such claims, pending resolution of claims with other parties. The first step is including specific stay language in the subcontract. As a result, a general contractor may be able to avoid litigating in multiple venues and the possibility of inconsistent outcomes.
Provisions Of The Miller Act
The Miller Act provides in part that:
waiver of the right to bring a civil action on a payment bond required under this subchapter is void unless the waiver is (1) in writing; (2) signed by the person whose right is waived; and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.
The following cases are instructive to both subcontractors and general contractors on the ability for parties to contractually agree to a stay of certain types of claims, including bond claims under the Miller Act. United States v. Dick/Morganti, and United States f/u/b/o Kingston Environmental, Inc. v. David Boland, Inc.
United States v. Dick/Morganti
In Dick/Morganti, a dispute arose between the general contractor and a number of subcontractors. A subcontractor filed suit for recovery on the operative payment bond. Due to defects in the work by the subcontractors, the general contractor attempted to file an administrative claim with the General Services Administration (“GSA”) to recover cost overruns. The surety requested the court issue a stay of the bond lawsuit, pending the outcome of the administrative claim. The relevant subcontract provision stated:
[i]f the Owner [GSA] and the Contractor [Dick/Morganti], pursuant to the General Contract or by agreement, submit any dispute, controversy, or claim between them to arbitration or some other dispute resolution procedure specified in the General Contract and such a matter involves or relates to a dispute, controversy, or claim between the Contractor and the Subcontractor, Subcontractor agrees . . . to stay any action filed by the Subcontractor until the dispute resolution and appeals process between the Contractor and the Owner is exhausted.
The subcontractor argued that the subcontract provision violated the Miller Act and was, therefore, void. Nonetheless, the court disagreed and entered the stay, pending resolution of the administrative claim. The court concluded that the subcontract did not violate the Miller Act. They found the provision postponed, but did not completely waive, the subcontractor’s right to a Miller Act claim.
United States f/u/b/o Kingston Environmental, Inc. vs. David Boland, Inc.
Similarly, in Kingston, a subcontractor filed suit for recovery on a payment bond. They alleged the prime contractor prevented the subcontractor from finishing the work. The subcontract required the subcontractor to exhaust administrative remedies before filing a claim, stating in relevant part:
…Subcontractor expressly agrees to stay any action or claim under this Subcontract Agreement against the Contractor and against the Contractor’s surety and its Payment Bond and Performance Bond pending the complete and final resolution of the Prime Contract’s contractual remedial procedure or the Subcontract Agreement’s mediation procedure, as required by Paragraph 13, above.
The subcontractor did not participate in any administrative proceedings before filing suit on the payment bond. The surety requested the court issue a stay of the bond lawsuit, pending the outcome of contractually required administrative proceedings. Like Dick/Morganti, the court found the above-referenced provision was enforceable. That’s because issuing the stay prolonged, rather than waived, the subcontractor’s right to bring a claim.
Conclusion On The Stay Of A Payment Bond
The two cases cited above illustrate the ability of a general contractor to minimize litigation costs by including specific stay language in their subcontracts. Therefore, in preparing these types of contractual provisions, one must keep in mind the difference between the ability to stay subcontractor claims versus binding subcontractors to the resolution of the dispute between the owner and general contractor.
In order for general contractors on public projects to attempt to avoid litigating on multiple fronts, they should craft unambiguous subcontract language requiring a stay of all claims, including Miller Act claims, with their subcontractor, pending resolution of the dispute with the owner.