“Two roads diverged in a wood, and . . .” the Prime Contractor had to take both roads at the same time to the same place.
Problem Example
Subcontractor on project for the U.S. Army Corps of Engineers at Ft. Lee, Virginia, sued Prime Contractor and Surety for nonpayment under the Federal Miller Act. Prime and Surety wanted to pause (stay) the litigation while pursuing arbitration. The Court granted a stay of the litigation for the Prime. The Court denied the stay of the litigation for the Surety because:
- The Surety was not obligated under any written agreement to arbitrate and
- The Surety’s liability under the Miller Act is independent of the Prime’s liability (these two facts are true in most instances).
In other words, even if the Prime owes nothing to the Subcontractor, the Surety could still owe payment to the Subcontractor if the lawsuit was timely filed, the work was done, and the Subcontractor was not already paid. In this case, the Prime had to pay for the Surety’s defense (a typical obligation) in the litigation while simultaneously paying for its own arbitration defense.
Potential Solution(s)
To avoid/reduce this dual-track approach/cost, prime contractors can:
- Seek the surety’s prior written agreement to arbitrate;
- Apply the American Arbitration Association’s Fast Track Procedures if the disputed amount is less than $100,000; or
- Require Alternative Dispute Resolution before any litigation (this will work in the Federal First Circuit (ME, NH, MA, and RI), but may not work in all Federal Courts). (Caution: Requiring arbitration of a Miller Act dispute will not pause the one-year statute of limitations to file a Miller Act lawsuit.)