Owner Nonpayment is No Defense to Miller Act Claim

As if you needed confirmation that the Federal Miller Act is a powerful tool for unpaid subcontractors, this is it. Even when a Prime ordered and accepted the Sub’s work, but didn’t have to pay under the Subcontract, the Subcontractor still got paid by the Prime’s Surety.

On a project for the U.S. Army Corps of Engineers in Qatar, a Subcontractor agreed to provide labor and materials for telecommunication systems. The Prime ordered and accepted a portion of the work and the Sub performed. The Corps then terminated the Prime for default, so the Prime refused to pay the Sub.

The Prime breached the Subcontract but because of its termination by the Corps and terms of the Subcontract, the Prime was not on the hook for any damages to the Sub. Notably, the Court stated that, if “the Court were to base its decision on whether a party had acted unprofessionally towards another party, had mislead another party (whether intentionally or not), or had wrongly accused another party of failing to perform under a contract, then the court would find the [Prime should pay the Sub].” But, the Court’s jurisdiction is limited to interpreting and applying only the applicable law, including the parties’ agreement.

However, under the Federal Miller Act, the Prime’s Surety was liable for the full amount of damages. The Surety’s liability is independent of its Principal’s liability and required only a showing that the Sub had performed the work and had not been paid.

Pragmatically, the Surety will pay the Sub and then demand reimbursement from its Principal, the Prime.

U.S. f/u/b/o VT Milcom, Inc. v. PAT USA, Inc., Case No. 5:16-cv-00007, (W.D. Va., July 14, 2017).

Published On: October 24, 2017