16.3 Bringing Suit

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

16.3 BRINGING SUIT

16.301 Payment Bond Actions.

A. Bond Information.

1. Federal Projects. Subcontractors and materialmen are not typically provided with a copy of the Miller Act payment bond by the prime contractor. To facilitate access to information regarding the bond

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necessary to bring suit, such as the identity of the surety, section 3133(a) of the Act states that "[t]he department secretary or agency head of the contracting agency shall furnish a certified copy of a payment bond and the contract for which it was given to any person applying for a copy who submits an affidavit that the person has supplied labor or material for work described in the contract and payment for the work has not been made or that the person is being sued on the bond." For additional information, the Federal Acquisition Regulation (FAR), Part 28.106-6(b) provides:

When a payment bond has been provided, the contracting officer shall, upon request, furnish the name and address of the surety or sureties to any subcontractor or supplier who has furnished or been requested to furnish labor or material for the contract. In addition, general information concerning the work progress, payments, and the estimated percentage of completion may be furnished to persons who have provided labor or materials and have not been paid. ⁴³

With the mandatory language of the Act and the FAR set out above, a simple request to the contracting officer is typically all that is required to obtain a copy of the payment bond on a federal project. It cannot be overstressed, however, that the statutory period for filing suit is strictly enforced, so a timely request for a copy of the bond is of paramount importance.

2. State Projects. Obtaining a copy of a payment bond on a nonfederal public project in Virginia can be more problematic. The unpaid subcontractor or supplier can request a copy of the payment bond directly from the prime contractor, but such requests are frequently refused or ignored. Moreover, requests made for a copy of the bond from the owner-entity are responded to at the discretion of the owner, as the Virginia Little Miller Act does not contain a parallel provision to 40 U.S.C. § 3133(a) or FAR 28.106-6(b) requiring the owner of a public project to provide a copy of the payment bond to a subcontractor or supplier. However, although not specific to the payment bond, section 2.2-4342(A) of the Virginia Code (Little Miller Act) provides:

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all proceedings, records, contracts and other public records relating to procurement transactions shall be open to the inspection of any citizen, or any interested person, firm or corporation, in accordance with the Virginia Freedom of Information Act.

Clearly a payment or performance bond would be a proper subject for a request under the Virginia FOIA, and proceeding under the Virginia FOIA is an effective means for obtaining a copy of a bond. At the same time, proceeding under the Virginia FOIA can be time consuming and, as noted above with regard to the federal Act, the statutory time limit for filing suit on a payment bond under the Virginia Little Miller Act is strictly enforced by the Virginia courts. Accordingly, an unpaid party that needs a copy of the bond to obtain the information necessary to file suit must move promptly to file its FOIA request to minimize the jeopardy of being untimely.

B. Notice.

1. Federal Projects. Section 3133(b)(2) of the Miller Act provides the following with regard to notice:

A person having a direct contractual relationship with a subcontractor but no contractual relationship, express or implied, with the contractor furnishing the payment bond may bring a civil action on the payment bond on giving written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made. The action must state with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. The notice shall be served—

(A) by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor's residence; or

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(B) in any manner in which the United States marshal of the district in which the public improvement is situated by law may serve summons.

Under the Miller Act, therefore, a first tier subcontractor or supplier (that is, a party with a direct contractual relationship with the prime contractor), need not provide notice of a claim on the payment bond to the prime contractor. But a covered second tier claimant (that is, one who has a direct contractual relationship with a subcontractor but not with the prime contractor), must give written notice of its claim to the contractor furnishing the bond within 90 days after the last labor or materials were provided. ⁴⁴ Although the Miller Act is remedial in nature and is to be construed liberally, "the giving of notice and bringing of suit within the prescribed time is a condition precedent to the right to maintain the action." ⁴⁵ Care must be given, therefore, to provide notice that is not only timely, but delivered to the proper party. For example, in United States ex rel. Ocean Construction Services, Inc. v. Liberty Mutual Insurance Co., the original prime contractor that furnished the payment bond was terminated for default. ⁴⁶ The surety took over the project and hired a completion contractor, who in turn hired a subcontractor. When the subcontractor was unpaid, it provided notice to the completion contractor within the time period specified in the Miller Act, but did not provide notice to the original prime contractor. The subcontractor's action against the payment bond was dismissed on summary judgment because the subcontractor had failed to satisfy the condition precedent of giving the required notice to the "contractor furnishing the payment bond," that is, to the original, defaulted prime contractor. ⁴⁷

The notice required by the Miller Act must also contain the amount claimed and the name of the party to whom the material or labor was provided. ⁴⁸ Moreover, it is not sufficient that the prime contractor has knowledge of an unpaid supplier or laborer; the prime contractor must have received notice that the unpaid supplier or laborer is demanding payment

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from the prime. ⁴⁹ Further, even when the prime contractor has actual notice of a claim, for example through telephone calls or a face-to-face meeting, written notice is still required. ⁵⁰ Even when a supplier has a direct contractual relationship with the prime contractor, if a claim arises from a separate contract between the supplier and a subcontractor, the supplier must give notice to the prime. ⁵¹

The Miller Act requires that notice be served "by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor's residence." ⁵² Although some courts have ruled that mailing the notice within the 90-day period was timely, ⁵³ the Fourth Circuit has ruled that the prime contractor must actually receive the notice within 90 days. ⁵⁴

Notice is not required within 90 days of each delivery of materials or labor but only within 90 days of the last delivery. ⁵⁵ However, when the claims are based on a series of contracts, a court has held that the claims must be made within 90 days of the last performance of work under each separate contract. ⁵⁶

Repair work which is not part of the original contract generally does not extend the notice provision or the limitations period for bringing

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suit. ⁵⁷ However, courts have had problems distinguishing between contract work and repair work. ⁵⁸ For example, where an original shipment of materials was incomplete and not completed until two months later, the second shipment was held to be part of the original contract and extended the limitations period. ⁵⁹ In contrast, where the work consisted of reseeding areas of grass that were not thick enough, it was held to be repair work and did not extend the limitations period. ⁶⁰ A subcontractor may compute the period of limitation from the time its sub-subcontractor finished work. ⁶¹ Finally, federal courts have considered demobilization by the contractor to be work for the purposes of calculating whether the Act's one year limitation for filing suit has run. ⁶² Therefore, it is likely that a court would also consider demobilization as work for purposes of calculating the start of the 90-day period for providing notice under the Act.

One purpose of the notice requirement is to assure the prime contractor that it may pay its subcontractors after a period of 90 days has expired and will not receive additional claims from the suppliers or subcontractors of its subcontractors. When notice is given, the general contractor may withhold payment from its subcontractors. ⁶³

2. Virginia Projects. Under Virginia's Little Miller Act, a claimant who has a direct contractual relationship with a subcontractor but not with the prime contractor may bring an action on the prime contractor's bond if the claimant has given written notice to the prime contractor within 90 days after last supplying labor or materials. ⁶⁴ Notice to the contractor needs to be sent by registered or certified mail, postage prepaid, to the prime

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contractor's office. The notice letter must state, "with substantial accuracy": (i) the amount claimed; and (ii) the party for whom the labor or material was supplied. ⁶⁵

In Commercial Construction Specialties, Inc. v. ACM Construction Management, the prime contractor's payment bond contained a notice requirement shorter than the time required by statute. ⁶⁶ In that case, the court held that a subcontractor who was...