No-Damage-for-Delay and Owner-Related Dispute Clauses are No Defense to Surety Liability Under Miller Act

Since Y2K, sureties for federal projects in Virginia have been unable to defend against bond lawsuits by asserting pay-if-paid or pay-when paid clauses.  Now, sureties are also unable to rely upon no-damage-for-delay (ND4D) and owner-related disputes clauses.

Recently, the Federal District Court for the Eastern District of Virginia held that a Prime’s Surety could not use the ND4D clause to defend against a Sub’s Miller Act lawsuit.  Neither was the Sub required to wait until resolution of delays that the Owner may have caused, despite an express subcontract provision requiring as much.

The Court held that “the subcontract cannot eliminate the right to payment altogether, or delay it, unless the subcontract does so in a manner consistent with the terms of the Miller Act.”  The only consistent means of which this author knows, and which the Court endorsed, were interim payment waivers for work already performed.  The Court likened ND4D clauses to prospective waivers, which the Court said are prohibited by the Miller Act (although no such language exists in the Act).

U.S. f/u/b/o Kitchens To Go v. John C. Grimberg Co., Inc., Case No. 1:16-cv-991 (U.S.D.C., E.D. Va., October 19, 2017)

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