By: Thomas S. Tripodianos Published: October 2015

Carrier Asserts a Claim Against Surety and General Contractor Pursuant to "the Miller Act" as well as a State Law

Question.        Carrier asserts a claim against Surety and General Contractor, (collectively "Surety and GC") pursuant to "the Miller Act" as well as a state law claim based on consignee liability for goods delivered but rejected.  Does Carrier have a claim?

Answer. No.

The National Park Service, contracted with General Contractor as the general contractor to perform improvements at a National Historic Site, ("the Project"). For the Project, Surety, as surety, issued a payment bond with General Contractor as the principal, pursuant to which Surety agreed to pay any claims by parties who performed work or supplied materials for the Project but were not paid by General Contractor

According to Carrier, General Contractor entered into a subcontract agreement with Subcontractor, under which Subcontractor agreed to custom manufacture pavement for the Project. According to Carrier, "[t]he proposal and contract between [Subcontractor] and General Contractor was akin to a subcontract agreement and did not look like a purchase order for general off-the-shelf construction material."

Carrier, through contracts with common carriers, transported Subcontractor's material to the Project. According to the bill of lading for the transportation of the goods, General Contractor was the consignee (recipient of the goods). The delivery was made to the Project in two truckloads on September 4, 2013 and September 6, 2013, with a transportation cost of $13,100, which Subcontractor did not prepay. The pavement was, however, rejected. Thereafter, Carrier demanded payment for the shipping charges from Subcontractor, but Subcontractor did not pay. Carrier also made claims for the shipping costs to Surety pursuant to the payment bond and to General Contractor as the consignee, but neither party has paid the amount.

Miller Act Claim

Carrier claims that it is entitled to payment for its shipping charges from Surety under the payment bond provided to General Contractor under the Miller Act in the amount of $13,100 plus interest and attorneys’ fees, as allowed for under Carriers contract with Subcontractor.

The Miller Act requires a prime contractor of a federal project to furnish a payment bond to insure payment to individuals who supply labor and/or materials for federal projects. Although the Miller Act is to be construed liberally, it is limited by a proviso that the payment bond protects only those persons who have a contractual agreement with a prime contractor or subcontractor engaged in a federal project. Persons supplying labor or material to a mere materialman are not protected.

Here, Carrier had a contractual relationship with Subcontractor to transport the pavement. However, it is entitled to protection under the Miller Act only if Subcontractor was a subcontractor of General Contractor. Thus, the main issue in dispute is whether or not Carrier has adequately alleged that Subcontractor is a subcontractor of General Contractor, rather than a materialman.

The following factors weigh in favor of a subcontractor relationship:

(1) the product supplied is custom fabricated; (2) the product supplied is a complex integrated system; (3) a close financial interrelationship exists between the companies; (4) a continuing relationship exists with the prime contractor as evidenced by the requirement of shop drawing approval by prime contractor or the requirement that the suppliers representative be on the job site; (5) the supplier is required to perform on site; (6) there is a contract for labor in addition to materials; (7) the term subcontractor is used in the agreement; (8) the materials supplied do not come from existing inventory; (9) the suppliers contract constitutes a substantial portion of the prime contract; (10) the supplier is required to furnish all the material of a particular type; (11) the supplier is required to post performance bond; (12) there is a backcharge for cost of correcting suppliers mistakes; and (13) there is system of progressive or proportionate fee payment.

On the other hand, the following factors weigh in favor of a materialman relationship:

(1) a purchase order form is used by the parties; (2) the materials come from preexisting inventory; (3) the item supplied is relatively simple in nature; (4) the contract is a small percentage of the total construction cost; and (5) sales tax is included in the contract price.

Based upon the above factors the Carrier has not made out a claim under the Miller Act.

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