U.S. for Use and Benefit of T.M.S. Mechanical Contractors, Inc. v. Millers Mut. Fire Ins. Co. of Texas, 90-8292

• Decision Date: 25 September 1991
• Docket Number: No. 90-8292,90-8292
• Citation: 942 F.2d 946
• Parties: 37 Cont.Cas.Fed. (CCH) P 76,182 UNITED STATES of America for the Use and Benefit of T.M.S. MECHANICAL CONTRACTORS, INC., Plaintiff-Appellant Cross-Appellee, v. MILLERS MUTUAL FIRE INSURANCE COMPANY OF TEXAS, Defendant Third-Party Plaintiff-Appellee Cross-Appellant, v. The CRAFTSMEN, INC., Defendant Third-Party Defendant-Appellee, and Joseph Breedlove, J.D. Richmond, Jr. and Doris D. Richmond, Third-Party Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 946

942 F.2d 946

37 Cont.Cas.Fed. (CCH) P 76,182

UNITED STATES of America for the Use and Benefit of T.M.S.

MECHANICAL CONTRACTORS, INC., Plaintiff-Appellant Cross-Appellee, v. MILLERS MUTUAL FIRE INSURANCE COMPANY OF TEXAS, Defendant Third-Party Plaintiff-Appellee Cross-Appellant, v. The CRAFTSMEN, INC., Defendant Third-Party Defendant-Appellee, and Joseph Breedlove, J.D. Richmond, Jr. and Doris D. Richmond,

Third-Party Defendants-Appellees.

No. 90-8292.

United States Court of Appeals, Fifth Circuit.

Sept. 25, 1991.

Rehearing Denied Oct. 29, 1991.

Robert L. Templeton, John Smithee, Robert L. Templeton & Associates, Amarillo, Tex., for plaintiff-appellant cross-appellee.

Michael D. Farris, James A. Knox, Vial, Hamilton, Koch & Knox, Dallas, Tex., for defendant third-party plaintiff-appellee cross-appellant.

William P. Weir, Ft. Worth, Tex., for the Craftsmen, Inc. Appeals from the United States District Court for the Western District of Texas.

Before GOLDBERG, SMITH and BARKSDALE, Circuit Judges.

GOLDBERG, Circuit Judge:

The facts in this Miller Act case present a question of law: whether the delay and termination components of the subcontractor's Miller Act claim constitute "labor or material [furnished] in the prosecution of the work provided for in [the] contract." 40 U.S.C.A. § 270b(a) (1986).

Plaintiff T.M.S. Mechanical Contractors, Inc., subcontractor on a government construction project, appeals from a judgment denying its delay and termination claims against Miller Act surety Millers Mutual Fire Insurance Company of Texas. Defendant Millers Mutual Fire Insurance Company of Texas cross-appeals from a judgment of $100,104.19 plus interest and costs awarded to the Plaintiff on its contract work claim.

I. FACTS AND PROCEDURAL HISTORY

The Craftsmen, Inc. ("Craftsmen") contracted with the Veterans Administration ("Government") on April 5, 1984 to perform fire and safety corrections on the Veterans Administration Medical Center in Waco, Texas ("Contract"). Craftsmen secured a payment bond from Millers Mutual Fire Insurance Company of Texas ("Millers"), as required by 40 U.S.C.A. § 270a(a) (1986) ¹ ("Bond").

Craftsmen subcontracted all the mechanical work under the Contract to T.M.S. Mechanical Contractors, Inc. ("TMS") on May 4, 1984 ("Subcontract"). The Subcontract incorporated the Contract's plans, specifications, and general conditions of the specifications. TMS based its Subcontract price of $727,000 on a bid that considered the value of the labor and materials necessary to complete the Subcontract work, overhead, profit, tools and equipment, labor burden, insurance costs, food, and shelter.

After discovering asbestos in some of the buildings involved in the performance of the Contract, the Government issued change orders enlarging the scope of the Contract work to include asbestos abatement. The Government partially terminated the Contract on October 10, 1985 pursuant to paragraph 18 of the Contract, entitled "Termination for Convenience of the Government." ²

Upon receipt of a Notice of Termination from the Government, Craftsmen in turn terminated the Subcontract. At that time, TMS had provided $387,735.00 worth of labor and materials in the performance of the Subcontract and $485,845.90 in the performance of the change orders. TMS, however, continued to provide labor and materials until March of 1986.

TMS subsequently sued Craftsmen as prime contractor and principal on the Bond and Millers as surety on the Bond, ³ and, at trial, claimed $201,580.00 for completed contract and change order work, $467,738.00 for expenses caused by construction delay, and $251,580.00 for expenses caused by the partial termination. Millers paid TMS $101,040.81 of its contract work claim, $48,150.08 of its termination claim, and $27,000.00 in interest. After a bench trial, the district court awarded TMS $100,104.19, roughly the balance of its contract and change order work claim, plus pre- and post-judgment interest against Millers, ⁴ but concluded that TMS could not recover either its delay or termination claim against the Miller Act surety. TMS now appeals from that judgment. ⁵ Based upon our independent appellate review, United States ex rel. Gulf States Enterprises, Inc. v. R.R. Tway, Inc., 938 F.2d 583, 586 (5th Cir.1991) (per curiam), we reverse as to the delay claim and affirm as to the termination claim. ⁶

II. THE MILLER ACT

This is a Miller Act ⁷ case, and, thus, this is a lien case. A mechanic's lien under state law against improved property provides security for suppliers of labor and material to private construction projects, but a mechanic's lien cannot attach to government property. F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 122, 94 S.Ct. 2157, 2161, 40 L.Ed.2d 703 (1974) (citation omitted). The Miller Act requires that a contractor on a federal construction project furnish "a payment bond ... for the protection of all persons supplying labor and material in the prosecution of the work provided for in [the] contract." ⁸ 40 U.S.C.A. § 270a(a)(2) (1986). The payment bond, "intended ... to protect the rights of these suppliers" who furnish labor or materials to government construction projects, thus provides an alternative to a mechanic's lien, F.D. Rich, 417 U.S. at 122, 94 S.Ct. at 2161, because it permits the supplier to sue the Miller Act surety on the payment bond. Specifically, the Act provides that

[e]very person who ... furnish[es] labor or material in the prosecution of the work provided for in [the] contract ... who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done ... or material was furnished ... for which such claim is made, shall have the right to sue on such payment bond for the amount ... unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him.

40 U.S.C.A. § 270b(a) (1986).

The Supreme Court has instructed us to liberally interpret the Miller Act "to effectuate the purpose of Congress." Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 380, 37 S.Ct. 614, 616, 61 L.Ed. 1206 (1917). ⁹ For example, the Court "has repeatedly refused to limit the application of the act to labor and materials directly incorporated into the public work." Brogan v. National Surety Co., 246 U.S. 257, 261, 263, 38 S.Ct. 250, 251, 252, 62 L.Ed. 703 (1918) (holding that groceries supplied to a contractor who was compelled to provide board and lodging for its laborers "[were] used exclusively in the performance of the work").

Certain limitations, however, stem from the language of the Miller Act. The Act extends the right to sue on the payment bond "to those who ha[ve] a contractual agreement with the prime contractor or with a 'subcontractor.' " ¹⁰ F.D. Rich, 417 U.S. at 122, 94 S.Ct. at 2161 (citation omitted); see J.W. Bateson Co. v. United States ex rel. Board of Trustees of National Automatic Sprinkler Industry Pension Fund, 434 U.S. 586, 589-90, 98 S.Ct. 873, 875, 55 L.Ed.2d 50 (1978). Moreover, the supplier must sue on the Miller Act payment bond within one year of furnishing labor or material in the prosecution of the contract work. ¹¹ United States ex rel. Texas Bitulithic Co. v. Fidelity and Deposit Co., 813 F.2d 697, 699 (5th Cir.1987) (describing one-year limitation period as a "substantive limitation of the rights conferred by the Act").

The central issue here concerns another, still-evolving limitation on the scope of a supplier's recovery against a Miller Act surety: the extent of recoverable "labor or material [furnished] in the prosecution of the work provided for in the [government construction] contract." 40 U.S.C.A. § 270b(a) (1986). TMS contends that the district court erred in denying recovery for amounts expended because of delayed performance and partial termination. We examine each of these claims separately.

A. Delay

TMS claims that delays caused by the asbestos abatement work dramatically increased its direct and indirect project overhead. ¹² TMS urges this Court to find that the district court erred by concluding that TMS could not recover on the payment bond for the components of its Delay Claim. We reverse the district court's judgment denying recovery on TMS's Delay Claim and remand for further proceedings consistent with this decision.

Many courts have confronted delay claims in cases brought on Miller Act payment bonds; some primarily consider the cause of the delay, e.g. United States ex rel. Superior Insulation Co. v. Robert E. McKee, Inc., 702 F.Supp. 1298 (N.D.Tex.1988), while others focus on the terms of the contract, e.g. Continental Casualty Co. v. Schaefer, 173 F.2d 5 (9th Cir.), cert. denied, 337 U.S. 940, 69 S.Ct. 1517, 93 L.Ed. 1745 and, 338 U.S. 820, 70 S.Ct. 63, 94 L.Ed. 497 (1949). To qualify for a Miller Act lien, however, the claimant must come within the explicit nomenclature of the Miller Act. We thus believe that the language of the statute, interpreted in light of its protective purpose, provides the analytical key to determining whether the supplier can recover under the Miller Act.

We are persuaded by the Court of Appeals for the Eleventh Circuit's recent decision in United States ex rel. Pertun Construction Co. v. Harvesters Group, Inc., 918 F.2d 915, 918 (11th Cir.1990), that a subcontractor can recover increased out-of-pocket costs for labor and materials furnished in the course of performing its subcontract caused by contractor or government delay. ¹³ The Pertun court focused, as we do, on the purpose and language of the Miller Act and found the surety liable for out-of-pocket costs of delay, a holding consistent with both facets of our emphasis. Id. The Eleventh Circuit reasoned that the "purpose of the statute--to afford the subcontractor the financial protection of an action against the surety--[can only] be achieved" by...