Some recent court decisions have
focused on whether the general contractor, by the terms of its subcontract
documents, can limit or eliminate a subcontractor’s Miller Act rights.
At its heart, the Miller Act applies
to most federal government contracts
and affords protection to subcontractors that, in private construction, would
be available through state mechanic’s
lien statutes. You cannot file a lien claim
against federal property, so the act is a
form of substitute remedy. The question
then becomes: Can the general contractor put language into its subcontract
terms and conditions that would negatively affect your Miller Act rights?
Contract restrictions on claims
Most construction subcontracts con-
tain multiple terms and conditions that
purport to limit or destroy a subcon-
tractor’s ability to recover damages or
even contract payments. All of you are
familiar with clauses that do not con-
cern how the work is to be performed
but only concern money. For example,
you can waive your right to claim time
and money for extra work if you do not
follow the subcontract’s written notice
clauses. A pay-if-paid clause is meant to
prevent you from suing on base contract
amounts or changes until the owner has
paid the general contractor. There are no-
damages-for-delay provisions that state
that you cannot recover any time-related
damages. Also, there are “pass-through”
clauses that state that, where the owner
is at fault (for extra work, delays, etc.),
your sole remedy is to pass your claims
through the general contractor, and your
sole entitlement is to whatever the owner
grants to the general contractor.
Separately, all of these clauses have
been tested in court and, with some
exceptions for extraordinary circumstances, have been held to be legally
enforceable. The idea is that contracting
parties are free to enter into agreements
that contain these provisions.
Incorporation by reference
Aside from the restrictive clauses in your
subcontract, as noted above, you may
also be subject to other restrictions flowing down from the owner’s contract with
the general contractor. It is fairly common to have a subcontract clause that the
owner’s terms and conditions are incorporated into your subcontract. Those
terms may have their own notice clauses
and limitation of damages provisions.
What happens when restrictive
clauses meet the Miller Act?
It can be said with some assurance that
the Miller Act takes precedence over a
pay-if-paid clause. There are two general
reasons for this. First, the courts have
held that the federal statutory rights
in the Miller Act cannot be eliminated
by contract. In other words, the payment bond portion of the act would be
meaningless if it could be defeated by a
defaulting owner, a situation where the
bond is of the most importance.
Second, if the subcontractor were
forced to wait to sue on the payment
bond because the owner had not yet
paid the general contractor, the manda-
tory time limit for filing a Miller Act suit
in court could expire.
So far, so good. Now what about a no-damages-for-delay clause? It’s not so good.
Here, the courts have drawn a distinction between a “right of recovery” (the
right to recover contract payments and
payment for extra work) and the “
measure of recovery” (the types of damages
you can obtain).
The measure of recovery can be
affected in many ways. The subcontract
terms can restrict markup, the value of
unit prices, a general contractor’s liability
for terminations for convenience, and for
delay damages. A number of federal courts
have held that these limitations on the
amount or type of damages “simply delineate the extent of the contractor’s liability.”
Because the contractual liability of the
general contractor determines Miller Act
coverage, the surety’s exposure is also limited by these restrictions. (Whether extra
labor, equipment, materials or supervision
resulting from changes that also require
additional time are partially “delay damages” are separate issues.) In other words,
your Miller Act rights remain, but a contract can change the amount you can
recover against a Miller Act surety.
This distinction between the right of
recovery and the amount of recovery is
not easy to summarize. The Miller Act
bonding company has all of the defenses
of the general contractor.
The Miller Act vs.
A more difficult problem comes with
the pass-through clause (also referred IST
LEGAL BY GERARD W. ITTIG
They Can’t Take That
Away From Me
The Miller Act and contract limitations
THE FEDERAL MILLER ACT has been around since the mid-1930s. You would think
that, by now, all questions about its application would have been resolved by the
courts. Unfortunately, hundreds of lawsuits remain that involve interpretations of
the Miller Act.