But What About My Machines Just Sitting There? Fed Court Rules Only Some Idle Equipment Costs are Allowable in a Payment Bond Claim

In 2010, the United States Army Corps of Engineers (USACE) entered into an agreement with Hirani Engineering & Land Surveying, PC (Hirani) for the construction of a levee wall on the National Mall to prevent the Potomac River from flooding into Downtown Washington. Hirani in turn then subcontracted out most of the work to a single firm, American Civil Construction (ACC).  For the next two plus years, the project was plagued with delays, changes, and disputes and consequently USACE terminated Hirani in April of 2013.  ACC then vacated the work site in the days following the termination.  USACE made a claim on Hirani’s Performance Bond and its surety Colonial Surety Company (Colonial) hired a contractor team to complete the project.

ACC filed suit against Hirani and Colonial in April of 2014 in the United States District Court for the District of Columbia for $2,172,285.23 in damages, prejudgment interest, attorney's fees, and costs.  In turn, Colonial counter-sued in the amount of $723,049.14 for work ACC had failed to complete. The bulk of ACC’s requested damages fell under at Miller Act-Payment Bond claim against Colonial for work ACC claimed was performed but not paid for by Hirani.

In its bond suit, ACC claimed quantum meruit damages which contained $138,135.34 for costs related to idle equipment.  ACC identified the idle equipment costs as, "the standby costs of having its owned equipment idling at the site as part of the reasonable value of ACC's owned equipment furnished in connection with the Project."  ACC asserted the figure did not represent rental values or other profit opportunities the equipment could have been used for.

The Court began its analysis by stating the Miller Act allows a contractor who "furnish[es] labor or material in carrying out work provided for in a contract" to make payment bond claim.  The court then goes on to state that idle equipment costs “cannot be viewed as an indivisible whole.” The Court presented two scenarios to exemplify this.  The first is when a contractor brings machines to a site and uses them over the course of weeks, but not every day.  The second scenario is one in which a contractor brings equipment to a job sixty days before it is ultimately used in the execution of contract work.   

The Court differentiated the two scenarios by stating in the first, a contractor cannot be expected to remove equipment from a work site every time it is not used so long as there are other activities that require its use, but in the second, a contractor cannot claim equipment is “furnished” for “carrying out work” if the equipment is not used absent a reasonable explanation.  The Court drew examples from the claim pointing to a skid steer that was brought to the job site early and used throughout the course of the project, but not every day, and compared it to an excavator brought in December of 2011, used a few times in January of 2012, and then used only one more time while sitting onsite for the duration of the project.

In its decision, the Court examined a submitted schedule of equipment utilized and determined ACC was entitled to $38,897.62 for standby expenses for idle equipment.

United States ex rel. Am. Civ. Constr., LLC v. Hirani Eng'g & Land Surveying, P.C.

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The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.

The Owner's Authority: Illinois Public-Construction Bonds Are “Deemed” to Include Both a Performance and Payment Guarantee

On The Owner's Authority, Daniel Dorfman recently posted an interesting article on a recent Illinois case concerning performance and payment bonds:

Last month, in Lake County Grading Company, LLC v. Village of Antioch, the Illinois Supreme Court handed down a ruling concerning bonds procured under the Illinois Public Construction Bond Act. The Court held that performance bonds procured under the Act are deemed to include payment obligations, regardless of whether the bonds expressly include payment guarantees.

[Read more]

A Contractor’s Remedies Under the Miller Act May Not Be Conditioned on State-Licensing Requirements.

In a matter of first impression, the United States Court of Appeals for the Ninth Circuit ruled that even though a contractor violated a state law requiring it to have a contractor’s license, the contractor was still eligible to make a claim under the Miller Act on a federal construction project. This decision brings the Ninth Circuit into a general agreement with other federal appellate courts that state law cannot abridge or condition a contractor’s rights and remedies under the Miller Act.

Plaintiff Technica was a subcontractor on a federal project in California. Technica provided almost $900,000 worth of labor and materials, but received less than $300,000 in payments. As a result, Technica filed suit under the Miller Act against the general contractor and its payment-bond surety.

Section 7031(a) of California’s Business and Professions Code precludes a contractor from maintaining an action to collect compensation for its services unless the contractor was licensed during the performance of the contract. Technica did not hold a California contractor’s license. The district court granted summary judgment in favor of the general contractor and the surety, holding that the state-licensing statute barred Technica from pursuing claims for nonpayment under the Miller Act.

In considering the appeal, the Ninth Circuit examined the Miller Act’s strong policy in favor of protecting subcontractors on public projects. Sovereign immunity prevents liens from being placed on public land, so Miller Act bonds are used to provide contractors an alternative means of securing payment on federal construction projects. Moreover, the Miller Act is considered highly remedial in nature and is liberally construed to protect entities that labor and/or provide material to public projects. The remedy provided by the Miller Act was federal in nature and the law that would prevent the unlicensed contractor from recovering was a state law. In addition, the court felt that enforcement of state-licensing requirements against Miller Act claims would “wreak havoc” on the uniform application of federal law, particularly in federal projects spanning multiple states.

The Ninth Circuit focused on the distinction between federal and state law as well as federal preemption in reversing the decision of the district court. It found that the state law could not abridge an entity’s right to pursue a Miller Act claim. The court conceded that while state contract law was sometimes used in evaluating a Miller Act claim, state contract law was not used to affect the rights established by the Miller Act.

This decision was one of first impression. It likely has broad applicability beyond the Ninth Circuit, as many states have contractor-licensing requirements.

Technica LLC ex. rel. v. Carolina Cas. Ins. Co., No. 12-56539, 2014 WL 1674108 (9th Cir. Apr. 29, 2014).