U.S. for Use and Benefit of Consol. Pipe and Supply Co. v. Morrison-Knudsen Co., Inc.

• Decision Date: 12 August 1982
• Docket Number: No. 81-5310,MORRISON-KNUDSEN,81-5310
• Citation: 687 F.2d 129
• Parties: 30 Cont.Cas.Fed. (CCH) 70,217 UNITED STATES of America for the Use and Benefit of CONSOLIDATED PIPE AND SUPPLY COMPANY, Plaintiff-Appellee, v.COMPANY, INC., Fischback & Moore, Inc., and American Bridge(Div. of U. S. Steel Corp.) a joint venture; INA Reinsurance Company, a Delaware corporation; Reliance Insurance Company, a Pennsylvania corporation, Defendants-Appellants. *
• Court: U.S. Court of Appeals — Sixth Circuit

Page 129

687 F.2d 129

30 Cont.Cas.Fed. (CCH) 70,217

UNITED STATES of America for the Use and Benefit of CONSOLIDATED PIPE AND SUPPLY COMPANY, Plaintiff-Appellee, v. MORRISON-KNUDSEN COMPANY, INC., Fischback & Moore, Inc., and American Bridge(Div. of U. S. Steel Corp.) a joint venture INA Reinsurance Company, a Delaware corporation; Reliance Insurance Company, a Pennsylvania corporation, Defendants-Appellants.

No. 81-5310. ^*

United States Court of Appeals Sixth Circuit.

Argued June 17, 1982.

Decided Aug. 12, 1982.

H. Frederick Humbracht, Jr., James L. McElroy, Nashville, Tenn., for defendants-appellants.

James R. Buckner, Miller & Martin, Raymond R. Murphy, Jr., Chattanooga, Tenn., for plaintiff-appellee.

Before LIVELY and KRUPANSKY, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

KRUPANSKY, Circuit Judge.

This action was initiated pursuant to the Miller Act, 40 U.S.C. § 270a et seq. by plaintiff Consolidated Pipe and Supply Company (Consolidated Pipe) seeking recovery on a payment bond executed by defendants Morrison-Knudsen Company, Inc., Fischback & Moore, Inc., and American Bridge (collectively Joint Venture) as principals and INA Reinsurance Company and Reliance Insurance Company as sureties (collectively Sureties).

Joint Venture, as a general contractor, executed a $260,996,400 construction contract (prime contract) with the United States for the construction of the Aero Propulsion Test Facility at the Arnold Engineering Development Center, Tullahoma, Tennessee. Defendants INA Reinsurance Company and Reliance Insurance Company are sureties under the bond required by 40 U.S.C. § 270a and issued as part of the general contract. Joint Venture's successful bid for the prime contract incorporated bids from purchase order suppliers and subcontractors including a bid from DGI Pipe Fabrications (DGI or middle party) to provide fabricated pipe. Joint Venture issued a purchase order to DGI in the amount of $5,537,072 to furnish fabricated pipe for construction package No. 2 "site and utilities preparation" and package No. 4 "piping and equipment installation" as specified by the prime contract. It was necessary that a part of the pipe for package No. 2 be coated, wrapped and lined to comply with government specifications. DGI in turn issued purchase orders to other companies to supply and conform the pipe to the government's requirement. One such purchase order was issued by DGI to Consolidated Pipe to coat, wrap and line pipe in accordance with the terms and conditions of the prime contract. DGI failed to compensate Consolidated Pipe for performing this work whereupon the instant action was initiated. The district court concluded that DGI was a subcontractor rather than a materialman resulting in the liability of Joint Venture and the Sureties under the Miller Act for the amount owed by DGI to Consolidated Pipe, $114,155 plus 8% interest. This appeal ensued.

The Miller Act, 40 U.S.C. § 270a et seq., requires a prime contractor of a federal project to furnish a payment bond to insure payment to individuals who supply labor and/or materials for federal projects. Section 270a pertinently provides:

(a) Before any contract ... for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, which shall become binding upon the award of the contract to such person, who is hereinafter designated as "contractor":

(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of each such person.

Like its predecessor the Heard Act of August 13, 1894, ch. 280, 28 Stat. 278, as amended, Act of February 24, 1905, 33 Stat. 811, the Miller Act is designed to provide an alternative remedy to the mechanics' liens ordinarily available on private construction projects. J. W. Bateson Co., Inc. v. United States, 434 U.S. 586, 589, 98 S.Ct. 873, 875, 55 L.Ed.2d 50 (1978); F. D. Rich Co., Inc. v. United States ex rel. Industrial Lumber Co., Inc., 417 U.S. 116, 122, 94 S.Ct. 2157, 2161, 40 L.Ed.2d 703 (1974). As such,

The Miller Act, like the Heard Act, is highly remedial in nature. It is entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects.

Clifford F. MacEvoy Co. v. United States, 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163 (1944). Accord: United States ex rel. General Electric Supply Co. v. Wiring, Inc., 646 F.2d 1037, 1042 (5th Cir. 1981). However, the class of laborers and material suppliers within the protective ambit of the Miller Act is limited by the proviso of § 270b(a) which provides:

(a) Every person who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond is furnished under section 270a of this title and who has not been paid ... shall have the right to sue on such payment bond for the amount ... due him: Provided, however, That any person having direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor furnishing said payment bond shall have a right of action upon the said payment bond upon giving written notice...

Accordingly, § 270b(a) limits the right to initiate a suit on the payment bond to

(1) those materialmen, laborers and subcontractors who deal directly with the prime contractor and (2) those materialmen, laborers and sub-contractors who, lacking express or implied contractual relationship with the prime contractor, have a direct contractual relationship with a subcontractor and who give the statutory notice of their claims to the prime contractor. (emphasis added)

MacEvoy, supra, 322 U.S. at 107-08, 64 S.Ct. at 894. Individuals with a more remote relationship do not come within the purview of the Act. As the Supreme Court has observed,

Congress cannot be presumed, in the absence of express statutory language, to have intended to impose liability on the payment bond in situations where it is difficult or impossible for the prime contractor to protect himself.

MacEvoy, supra, 322 U.S. at 110, 64 S.Ct. at 895. Further Many such materialmen are usually involved in large projects; they deal in turn with innumerable sub-materialmen and laborers. To impose unlimited liability under the payment bond to those sub-materialmen and laborers is to create a precarious and perilous risk on the prime contractor and his surety.

Id. See also: Bateson Co., supra (sub-subcontractors are not "subcontractors" within the meaning of the Miller Act).

In the instant action Consolidated Pipe had no "express or implied contractual relationship" with the prime contractor, Joint Venture, but was instead retained by DGI to coat, wrap and line pipe. The narrow issue joined in this appeal is whether DGI is a "subcontractor" or a materialman within the intent of the Act. Although the Miller Act offers no definition of these terms, the legislative history of the Act discloses that Congress intended the common and accepted meanings as used by the building trades wherein

a subcontractor is one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract, thus excluding ordinary laborers and materialmen.

MacEvoy, supra, 322 U.S. at 109, 64 S.Ct. at 894. This technical definition was supplemented in F. D. Rich Co., Inc. v. United States, 417 U.S. 116, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974) wherein the Supreme Court examined the "substantiality and importance" of the relationship between the prime contractor and the "subcontractor" to determine the status of the latter within the context of the Miller Act, since:

It is the substantiality of the relationship which will usually determine whether the prime contractor can protect himself, since he can easily require bond security or other protection from those few "subcontractors" with whom he has a substantial relationship in the performance of the contract.

417 U.S. at 123-24, 94 S.Ct. at 2162.

The "relationship" between DGI and Joint Venture in the action sub judice is reflected in the following unchallenged district court findings of fact:

1. * * * The Joint Venture, as a general contractor, entered into a construction contract ("prime contract") with the United States of America ... for the construction of the Aero Propulsion Test Facility at the Arnold Engineering Development Center, ...

2. * * * The prime contract between the Corps of Engineers and Joint Venture totalled $260,996,400.00.... Joint Venture issued a purchase order to DGI in the amount of $5,537,072.00 providing that DGI was to provide fabricated pipe for construction package No. 2 "site and utilities preparation" and package No. 4 "piping and equipment installation" of the prime contract. This pipe represented approximately 40% of the pipe used on the total project. It was necessary that a portion of the pipe for package No. 2 be coated, wrapped and lined to comply with government specifications. DGI did not perform this process, but instead issued purchase orders to other companies to supply this coating. One such purchase order was issued by DGI to Consolidated Pipe & Supply Co. ("plaintiff"). DGI failed to pay plaintiff for coating this material....

3. The process of fabrication involves taking straight pipe from the manufacturer, cutting it into predetermined lengths and adding fittings, 90 degree elbows, 45 degree elbows, inlets, outlets, saddles and offsets of pertinences to make it conform to contract specifications. Fabricated pipe cannot be purchased off the shelf. DGI fabricated the pipe at its facilities in Texas and the pipe was then sent to the project site.

4. The...