Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law 1999-Part I

Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law 1999-Part I

Article excerpt

The annual survey of fidelity and surety law is a project of the IADC Fidelity and Surely Committee and is published in two parts. This is Part I of the 1999 survey. Part II will appear in the July 2000 issue of Defense Counsel Journal.

The sections of the survey were prepared as follows:

"Public Construction Bonds, " by IADC member Ronald A. May of the Little Rock firm of Wright, Lindsey & Jennings.

"Private Construction Bonds, " by IADC member R. Earl Welbaum of the Miami (Coral Gables) firm of Welbaum, Guernsey, Hingston, Greenleaf & Gregory

"Fidelity and Financial Institution Bonds, " by IADC member Randall L Marmor of the Chicago firm of Clausen, Miller P. C., assisted by Cole S. Kain.

"Sureties' Remedies, " by IADC member Roger P. Sauer of the Roseland, New Jersey, firm of Friedman & Siegelbaum.

The survey material is edited by IADC member Charles W. Linder Jr., of the Indianapolis firm of Linder & Hollowell. While the contributors' principal work is identified by the above categories, some of their work may appear in another category.

The survey acknowledges the assistance of Michael J. Rune II.


A. Bonds under Federal Laws

1. Substantive

Federal Prompt Payment Act permits recovery of penalties and attorney's fees in Miller Act claims.

In a Miller Act claim before a federal district court in Louisiana, the plaintiff has sought penalties and attorney's fees. The defendant prime contractor and its surety filed a motion for partial summary judgment on that claim. The motion was denied, the court holding that the 1998 amendments to the Prompt Payment Act (31 U.S.C. 39050)) effectively terminated previous holdings that penalties and attorney's fees were not covered by the Miller Act.

The succinct opinion goes on to say: "Congress may have indeed 'entrenched' itself into the field of federal project contracting and subcontracting to the extent that all state law regarding the matter is now preempted. That being said, Congress may 'taketh' from litigants, but it may also 'giveth."' Cal's AIC & Electric v. Famous Construction Group. 1

Full recovery of delay damages allowed even though prime contractor only party responsible for delays.

In another Miller Act case related to the construction and remodeling of Air National Guard buildings in St. Louis, the prime contractor failed properly to issue revised construction schedules, causing substantial delay damages to its electrical subcontractor. A federal district court in Missouri found that the government and the prime contractor shared responsibility for the delays but awarded the subcontractor damages compensating it in full for the delays.

On appeal, the prime contractors and its surety argued that they were only partially at fault for the damages and that their responsibility should be limited. The Eighth Circuit found that other circuits had allowed full recovery and followed the reasoning of those cases. As a side issue, the court refused to allow recovery of damages for lost profits, holding that a separate breach of contract claim under state law would be necessary to apply for such relief. Consolidated Electrical & Mechanicals v. Biggs General Contracting.'

2. Procedural

Non-arbitrable Miller Act claims stayed pending arbitration of separate equitable claims.

In Tanner v. Daco Construction Inc.,' the subcontract sued on provided for arbitration but specifically excluded from arbitration any claim under the Miller Act. When a controversy arose, the federal district court for Oklahoma found that separate equitable claims asserted by the subcontractor were subject to arbitration but held that it would be "grossly inefficient" to have the parties arbitrate and litigate at the same time. Consequently, it stayed the Miller Act case until the arbitration had been concluded. …

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