Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 2000-Part I

Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 2000-Part I

Article excerpt

This roundup of recent cases covers public and private construction bonds, fidelity and financial institution bonds, and sureties' remedies

Edited by Charles W. Linder Jr.


A. Bonds under Federal Laws

1. Jurisdiction

Contracts Dispute Act divests federal district courts of jurisdiction over contract claims against U.S. Postal Service.

In S&G Excavating v. Seaboard Surety Co.,1 a subcontractor on a contract with the U.S. Postal Service filed suit to foreclose a lien under the Miller Act. It appeared that the plaintiff had failed to comply with the notice requirements of the Miller Act, so its claim was dismissed. The Postal Service argued that the Contract Disputes Act (CDA), 41 U.S.C. 609 et seq., provided exclusive jurisdiction of claims against it in the Court of Claims. The plaintiff, on the other hand, argued that the Postal Reorganization Act of 1970, 39 U.S.C. 101 et seq., exposed the Postal Service to suit notwithstanding the CDA.

A federal district court in Indiana went along with the Postal Service argument, saying that Congress had consciously balanced the cost and benefits of allowing subcontractors to sue the government under the CDA and that to allow a claim under these circumstances would frustrate the aims of Congress.

2. Procedural

Remedial work does not toll the Miller Act's statute of limitations. After completing its work on the heating, ventilating and air conditioning systems for a Department of Commerce facility, the claimant subcontractor was required to replace certain heaters and have them tested. One year after the last test on the heaters, the subcontractor filed suit under the Miller Act.

In Interstate Mechanical Contractors v. International Fidelity Insurance Co.,2 the Sixth Circuit affirmed a district court finding that the suit was not timely in that it was not filed within one year after the last labor or material was furnished. The court pointed out that the words "labor" and "material" were not self-evident, but it agreed with a majority of courts interpreting the Miller Act that warranty work after final inspection does not come within the act's meaning of labor and materials.

The plaintiff had argued that if it had not performed the testing after the work was completed it would have breached its contractual obligations, but the court refused to equate "labor" with "contractual duties." Neither was the court impressed with the fact that the corrective work was not caused by the contractor's own error but by the error of a third party.

The Sixth Circuit panel's majority opinion is well written and accompanied by an equally well-written dissenting opinion. Both deserve careful study.

Separate invoices from supplier did not constitute separate contracts, and suit within one year from last shipment was timely as to all shipments.

In a contract for electrical services at a naval facility in Puerto Rico, the plaintiff has furnished electrical services to the general contractor and enclosed separate invoices on each delivery. When it was unpaid, it filed suit under the Miller Act. The general contractor and its surety argued that the claim was not timely except as to the last invoice.

The First Circuit affirmed a judgment by the district court in Puerto Rico that this was not a series of separate and independent contracts, as alleged by the defendarts, so that the timely claim as to the last shipment was sufficient. It went on to award attorney fees pursuant to terms and conditions of the invoices. G.E. Supply v. C&G Enterprises.3

Previous state court action against principal constituted notice sufficient to comply with Miller Act's 90-day notice requirement.

One of the requirements of the Miller Act is that if a person has dealt exclusively with a subcontractor and has no direct contractual relationship with the prime contractor, he must give written notice of his claim to the prime contractor within 90 days from the date on which the subcontractor performed the last work or furnished the last materials. …

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