U.S., for Use and Benefit of Pertun Const. Co. v. Harvesters Group, Inc.

• Decision Date: 07 December 1990
• Docket Number: Nos. 89-5601,89-6041,s. 89-5601
• Citation: 918 F.2d 915
• Parties: 36 Cont.Cas.Fed. (CCH) 75,979 UNITED STATES, for Use and Benefit of PERTUN CONSTRUCTION COMPANY, Plaintiff-Appellee, v. HARVESTERS GROUP, INC., Defendant, National Union Fire Insurance Company of Pittsburgh, Pa., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 915

918 F.2d 915

36 Cont.Cas.Fed. (CCH) 75,979

UNITED STATES, for Use and Benefit of PERTUN CONSTRUCTION

COMPANY, Plaintiff-Appellee, v. HARVESTERS GROUP, INC., Defendant,

National Union Fire Insurance Company of Pittsburgh, Pa.,

Defendant-Appellant.

Nos. 89-5601, 89-6041.

United States Court of Appeals, Eleventh Circuit.

Dec. 7, 1990.

J. Steven Hudson, Kimbrell & Hamann, P.A., Miami, Fla., for defendant-appellant.

Jon C. Moyle, Jr., Steel Hector & Davis, Miami, Fla., for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Florida.

Before ANDERSON and EDMONDSON, Circuit Judges, and MORGAN, Senior Circuit Judge.

EDMONDSON, Circuit Judge:

This Miller Act case presents two basic questions on appeal. The first is a matter of first impression in this circuit: When a prime contractor causes delay in the progress of a federal government project, can the subcontractor recover from the prime contractor's Miller Act surety for the increases, resulting from the delay, in its actual expenditures for labor and material actually supplied to the project? And the second is an issue of contract interpretation and application: Assuming recovery from the surety for the costs of delay is generally available under the Miller Act, will the subcontractor's recovery nonetheless be barred if the subcontract agreement provides that the subcontractor's sole remedy for delay will be an extension of time to perform, but the prime contractor has in fact wrongfully prevented the subcontractor from completing performance? We hold that the Miller Act allows recovery from the surety for increased out-of-pocket costs caused by delay and that the subcontract provision regarding no damages for delay does not preclude recovery under these circumstances. We therefore affirm the bulk of the district court's award below. ¹ Because we find the district court's determination of additional costs incurred due to pre-commencement delay clearly erroneous, however, we reduce the damage award by $1,200, from $69,376.71 to $68,176.71. ²

Harvesters Group, Inc. (hereinafter Harvesters) entered into a prime contract with the Navy to construct improvements at the United States Navy and Marine Corps Reserve Training Center in Miami, Florida. In accordance with the Miller Act, 40 U.S.C.A. Secs. 270a-270d, Harvesters secured a payment bond in the amount of $1,517,600 from Appellant National Union Fire Insurance Co. of Pittsburgh, Pa. (hereinafter National Union). Harvesters then entered into a subcontract with Appellee Pertun Construction Co. (hereinafter Pertun), a concrete forming subcontractor, under which Pertun was to perform concrete work necessary for the federal project. Paragraph 3(f) of the subcontract provided that if the prime contractor delayed the subcontractor's work, the subcontractor would be granted an extension of time to perform, but that such extension of time would preclude other claims by the subcontractor on account of the delay.

The Navy training center project had lots of problems. Toxic wastes were discovered, the job site lacked running water and electricity, and Harvesters experienced difficulties in finding subcontractors to perform parts of the work, in obtaining necessary permits, and in obtaining timely submittals of documents required by the Navy. As a result of these difficulties, construction was delayed from the outset. After construction commenced, Harvesters' failure to supervise, schedule, and coordinate the work of the various subcontractors properly caused further delays--delays which increased the labor and equipment rental costs of Pertun. Then, when Pertun's concrete work was eighty percent finished, its participation in the project was wrongfully terminated by Harvesters. Pertun was not permitted to return to the job site, either to complete performance or to retrieve its tools and materials.

As Harvesters' surety pursuant to the Miller Act payment bond, Appellant National Union has admitted liability to Appellee Pertun for "work in place"--work Pertun performed, but had not yet been paid for. The parties stipulated this amount to be $34,593: the difference between $226,605, the value of the labor and materials provided by Pertun to the project, and $192,012, the amount Pertun had already been paid. In the meantime, however, some of Pertun's unpaid suppliers had themselves filed claims against the bond; National Union thus sought setoffs--for payments made to Pertun's unpaid suppliers, as well as for payments withheld by the Navy due to defects in Pertun's work--against the $34,593 admittedly owed Pertun for work in place. Pertun contested the validity and extent of the claimed setoffs and also asserted the right to an additional award to cover the increased costs it incurred as a result of delay.

After a bench trial, the district court rejected the majority of National Union's claimed setoffs and granted Pertun's request for additional damages to cover costs incurred due to delay. The resulting final judgment was for $69,376.71: $25,329.60 for work in place; $900.00 for Pertun's equipment and materials which Harvesters retained and incorporated into the project; and $43,147.11 for increased costs of labor and equipment rentals caused by the delay. The district court also granted Pertun's motion for reasonable attorney's fees and costs. As noted above, this opinion will focus on the portion of damages awarded for increased costs caused by delay.

1. Damages for delay under the Miller Act.

The purpose of a Miller Act payment bond is to protect subcontractors and suppliers who provide labor and material for a federal project, because federally owned lands or buildings are exempt from the liens that would normally secure these parties' rights under state law. United States f/u/b/o Sherman v. Carter, 353 U.S. 210, 216, 77 S.Ct. 793, 797, 1 L.Ed.2d 776 (1957); see 40 U.S.C.A. Secs. 270a-270b. To effectuate this congressional intent, the Miller Act is to be liberally construed and applied. F.D. Rich Co., Inc. v. United States f/u/b/o Industrial Lumber Co., Inc., 417 U.S. 116, 124, 94 S.Ct. 2157, 2162, 40 L.Ed.2d 703 (1974). But a liberal construction does not mean that the Miller Act establishes an unlimited basis for recovery; courts have held that the Miller Act surety is not liable for damages caused by the prime contractor's breach of contract. See, e.g., United States f/u/b/o Edward E. Morgan Co., Inc. v. Maryland Casualty Co., 147 F.2d 423 (5th Cir.1945); L.P. Friedstedt Co. v. U.S. Fireproofing Co., 125 F.2d 1010 (10th Cir.1942) (applying Heard Act, predecessor of Miller Act). Thus, for example, in the present case National Union would not be liable to Pertun for profits lost as the result of Harvester's premature and wrongful termination of the subcontract. See Arthur N. Olive Co. v. United States f/u/b/o Marino, 297 F.2d 70 (1st Cir.1961). It would be liable, on the other hand, for any "sum or sums justly due" Pertun for labor or material furnished in the performance of its agreement to work on the public project. See 40 U.S.C.A. Sec. 270b(a) (1986).

In the court below, Pertun sought and received "damages for delay." Despite the possibly misleading use of the term "damages," this award represented compensation for Pertun's increased out-of-pocket costs caused by the delay for labor and materials Pertun actually furnished in performing its contractual obligation. The essential question presented thus becomes: are these increased costs "sums justly due" for labor and materials provided or are they really damages for the prime contractor's breach? Because we conclude that these increased costs of performance are "sums justly due" rather than damages for breach, we affirm the district court judgment holding National Union as the Miller Act surety liable for these additional out-of-pocket expenses.

Although the liability of a Miller Act surety for increased costs caused by delay has not yet been directly addressed by this court, ³ several courts have granted such awards. See United States f/u/b/o Heller Elec. Co. v. William Klingensmith, Inc., 670 F.2d 1227 (D.C.Cir.1982); United States f/u/b/o Otis Elevator Co. v. Piracci, 405 F.Supp. 908 (D.D.C.1975); United States f/u/b/o Mariana v. Piracci Const. Co., Inc., 405 F.Supp. 904 (D.D.C.1975). Others (including a district court for the Southern District of Florida construing a Florida statute analogous to the Miller Act) have gone the other way, disallowing damages for delay as beyond the scope of the bond. See, e.g., Friestedt, 125 F.2d at 1011-12; W.S.A. Inc. v. Stratton, 680 F.Supp. 375 (S.D.Fla.1988); Lite-Air Products, Inc. v. F & D of Maryland, 437 F.Supp. 801 (E.D.Pa.1977) (also construing state statute analogous to Miller Act). We find the logic of the former cases--and particularly the reasoning set forth in Mariana--more persuasive. See Mariana, 405 F.Supp. at 906-07.

Surety liability for out-of-pocket costs of delay is consistent with both the language and the purpose of the Miller Act. The statute provides for recovery of the costs of labor and materials furnished or used by the subcontractor in performing contractual obligations. Only by allowing a full recovery of these costs, including those portions caused by delay, can the purpose of the statute--to afford the subcontractor the financial protection of an action against the surety--be achieved. If the surety is not liable for the portion of costs caused by delay, the subcontractor will either have to bear the burden himself or rely on his remedy for breach of contract against the prime contractor. And it was Congress's view of the inadequacy of these very alternatives to assure full payment for labor and materials actually supplied to a federal project that prompted the enactment of the Miller Act. See id.

National Union calls our attention to United States f/u/b/o Edward E. Morgan Co., Inc. v. Maryland Casualty Co., 147 F.2d 423 (5th Cir....