By: Alexander A. Miuccio Published: November 2016

Failure to Give Timely Notice Dooms Subcontractor's Claim

Notice of claim provisions in public works contracts are strictly enforced. The failure of a contractor to give timely written notice required by the contract or statute generally results in the forfeiture of its claim. In the recent case of USA v AIM Steel International, Inc. et. al., a second-tier subcontractor’s claim was dismissed because of the failure of that sub-subcontractor to give timely notice of its claim to the prime contractor.

Background

In March of 2013, the prime contractor Macknak-Korte contracted with the U.S. government for the construction of an addition to the Army Reserve Center at Fort Wadsworth in Staten Island. Because of the size of the project, and because mechanic’s liens are not available on federal public construction projects, the Miller Act requires that prime contractors obtain payment bonds to provide an alternate security for the benefit of subcontractors and material suppliers. Further, because the Miller Act is designed to protect the claims of lower-tier subcontractors who may not even be known to the prime contractor, it requires that any subcontractor who doesn’t have a direct relationship with the prime contractor must first give the prime contractor notice of its claim with substantial accuracy, which notice must be given within 90 days of the lower-tier subcontractor’s last day of work on the project.

Here, Macknak obtained the required payment bond and subcontracted with AIM Steel International for steel supply and erection services. AIM, in turn, subcontracted out a portion of its scope of the work to Midtown Contracting. Pursuant to its sub-subcontract with AIM, Midtown performed work for the project up through August 20, 2014. Separately, in September of 2014, Macknak purchased materials directly from Midtown, for which it was paid in full.

In February of 2015, Midtown sued Macknak’s payment bond surety for the amounts owed by AIM to Midtown. The surety moved for summary judgment dismissing Midtown’s claims, arguing that the prerequisite notice of these claims was untimely. In opposition to the motion, Midtown claimed that it provided written notice to Midtown on three separate occasions in October and December of 2014 and, therefore, it satisfied the notice requirements of the statute.

Decision

The court dismissed Midtown’s claims against the bond surety, finding that it failed to give adequate notice prior to November 18, 2014, within 90 days of Midtown’s last day of work on the project. This notice is required under the Miller Act so that the prime contractor can “understand the total scope of its obligations” and be alerted to protect itself by withholding sufficient sums from its payments to AIM, the first-tier subcontractor.

As to the three specific notices that Midtown claimed were provided to Macknak, the October 2014 communication was simply an email in which Macknak stated that it was aware that Midtown was owed money. However, Midtown did not notify Macknak that Midtown was making any claim against it or its payment bond, and Midtown failed to set forth how much was owed. Accordingly, the Court held that this notice, although within the proper 90 day time frame, was not sufficiently detailed to provide the required notice.

As to the two December 2014 communications, the Court held that they were untimely because they were sent outside of the 90 day window. In doing so, the Court rejected Midtown’s argument that the separate Macknak contract with Midtown tolled commencement of the 90 day period until Midtown delivered its last material under that September 2014 agreement. The Court noted, however, that Midtown’s work was not performed under an “over-all contract” but, rather, two separate contracts; the one subcontract between Macknak and AIM, and the other direct contract between Macknak and Midtown, for which Midtown was paid in full.

Comment

Here, the Midtown court followed long-standing case law which enforce the notice requirements of the Miller Act against lower-tier subcontractors, such as Midtown. Contractors would be well advised to comply with these statutory notice deadlines, as courts will not hesitate to strictly enforce them, even if it means that a contractor may end up forfeiting any recovery on an otherwise valid claim

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