“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.)
Roads & Bridges
Where Does the Buck Stop?
Jon is a monthly contributor to Roads & Bridges magazine. He has been writing the law section for the magazine since January 2020. The link below will take you directly to the Roads & Bridges […]
Pay-If-Paid Unenforceable in Virginia Starting Jan. 1, 2023
As of Jan. 1, 2023, pay-if-paid clauses are unenforceable, regardless of whether a surety/payment bond claim is involved. This is only for subcontracts created on/after 1/1/23.
Also for subcontracts created on/after 1/1/23, the prime must specifically […]
How Short is Too Short
A limitations period is too short when it’s unreasonably short.
Construction Contracting Without Relief Clauses During COVID-19
What to do if your contract lacks the parts to handle COVID-19? Considerations for creating new contracts during COVID-19.
Your Contract Can Handle COVID-19
Uncertainty and risk are not new or novel to contractors. Contracts reduce uncertainty and share the risk of doing or providing something. COVID-19 may have contributed to, but it has not single-handedly created, uncertainty and risk.
Contractors Can Use RFI to Notify the Government
The Board (and the government) should not elevate form over substance in evaluating the sufficiency of a contractor’s notice.
Taxes Due!
It’s tax season again, so it’s time to pay the piper.
Contractor Wins when Government Reconsiders Accord
Ever had buyer’s remorse or second-guessed a decision? When the U.S. Army Corps of Engineers did that, a Contractor won its claim for time and money.
On a flood control project near Nogales, Arizona, severe flooding […]
Claim Certified with Digital Signature Deemed OK
The law is not a trend-setter. It doesn’t readily change or adapt to tech. So, a commonplace practice in business became a dispute when a claimant digitally certified a claim under the Contract Disputes Act.
Jonathan J. Straw
Blog Author
Contact Jonathan
Partner | KraftsonCaudle.com
Download Jon’s Bio
