Fifth Circuit Holds Contractor May Not Assert Set-Off for Defective Work Because It Failed to Comply with Subcontract Provisions for Notice and Opportunity to Cure

United States ex rel JEMS Fabrication, Inc. v. Fidelity & Deposit Co. of Maryland, 2014 U.S. App. Lexis 8175 (5th Cir., April 30, 2014)

This dispute arises out of a construction project to renovate and redevelop pumping stations located at various sites along the Mississippi River.  The U.S. Corp of Engineers entered into a contract with Benetech, LLC for the project.  Benetech then entered into a subcontract with plaintiff JEMS, whereby JEMS agreed to supply custom-fabricated structural steel for use on the project.  The contract amount, including approved change orders, was $2.38 million and required JEMS to provide shop drawings, materials and on-site labor.

JEMS delivered all of the shop drawings and most of the materials required by the subcontract.  However, JEMS did not supply most of the on-site labor, as Benetech and JEMS agreed that Benetech would supply the labor to satisfy its self-performance obligations in its contract with the Corp of Engineers.  JEMS and Benetech also agreed to a subcontract modification such that Benetech would purchase a custom building directly from JEMS’ subcontractor for $54,000.  However, because of changes made by the Corp of Engineers, which were not incorporated into the subcontract, Benetech’s cost for the custom building was $147,000.  Ultimately, Benetech paid JEMS just under $1 million for its work on the project and alleged that JEMS was not entitled to any additional payment.  Benetech claimed that it was entitled to a set-off against any amount due under the subcontract because it had to purchase materials that JEMS should have supplied for the project.

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Posted in Defective Work, Notice

District Courts in California and Colorado Hold Subcontract References to Prime Contract Disputes Procedures Do Not Waive Miller Act Rights

United States ex rel. Heggem-Lundquist Paint Co. v. Centerre Gov’t Contracting Grp., LLC, 2014 U.S. Dist. LEXIS 66161 (D. Colo. Apr. 23, 2014) 

 Am. Constr. & Envtl. Servs. v. Total Team Constr. Servs., Inc., 2014 U.S. Dist. LEXIS 57467 (E.D. Cal. Apr. 23, 2014)

Federal district courts for the District of Colorado and the Eastern District of California have ruled  subcontract provisions that disputes will be resolved in accordance with the dispute resolution provisions in a prime contract are insufficient to waive or postpone a subcontractor’s Miller Act rights.

These cases involved claims asserted by subcontractors (collectively “Plaintiffs”) against the upstream contractors and their sureties (collectively “Defendants”) for work performed on federal government projects.  The plaintiff in Haggem-Lundquist performed as a sub-subcontractor on a Department of Veterans Affairs renovation project at a medical center in Denver, Colorado.  The plaintiff in Am. Constr. & Envtl. Servs. performed as a subcontractor in support of a contract with the Army Corps of Engineers to replace emergency generators at a Veterans Administration Care Facility in Fresno, California.  In both actions, Plaintiffs filed claims against the bonds issued for the projects pursuant to the Miller Act to recover money allegedly owed for changed and additional work performed.

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Posted in Miller Act, Payment bond, Subcontract

Ninth Circuit Holds Subcontractor’s Lack of License Required By California Law Did Not Bar Its Pursuit of Federal Miller Act Claim

Technica LLC v. Carolina Casualty Ins. Co., 749 F.3d 1149,2014 U.S. App. LEXIS 8023 (9th Cir., April, 29, 2014)

This payment dispute arose out of the ICE El Centro SPC – Perimeter Fence Replacement/Internal Devising Fence Replacement federal project in California.  Candelaria was the prime contractor.  Candelaria entered into subcontract with Otay, who contracted with Technica to act as a sub-subcontractor.  After submitting invoices for labor, material and services, Technica received only partial payment for its work.

Technica filed a Miller Act claim authorized by federal statute  to recover the outstanding amount owed on its sub-subcontract against Candelaria’s payment bond.  Candelaria and its surety filed a motion for summary judgment, arguing that the California Business and Professions Code precludes any contractor from maintaining a collection action, unless the contractor was licensed during the performance of the contract.  Since Technica lacked a California contactor license, the district court held that Technica could not pursue a Miller Act claim.

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Posted in Miller Act

D.C. Circuit Holds Internal Investigations Directed By In-House Counsel Are Protected by Attorney-Client Privilege Where Providing or Obtaining Legal Advice is One of the Significant Purposes of the Investigation

In re Kellogg Brown & Root, Inc., 2014 U.S. App. LEXIS 12115 (D.C. Cir. June 27, 2014)

The United States Court of Appeals for the District of Columbia Circuit held that the attorney-client privilege applies to internal investigations performed at the direction of in-house counsel if “one of the significant purposes” of the investigation was to obtain or provide legal advice.

Kellogg Brown & Root, Inc. (“KBR”) was a defense contractor for the United States government. Harry Barko, a former employee of KBR, filed a False Claims Act complaint against KBR, alleging fraud against the government. During the ensuing litigation, Barko requested documents related to KBR’s prior internal investigation into the alleged fraud. The investigation had been conducted by KBR pursuant to Department of Defense regulations that require defense contractors to maintain compliance programs and conduct internal investigations, and was overseen by the company’s in-house legal department. KBR objected to the document request, arguing that the investigation was protected by the attorney-client privilege. In turn, Barko argued that the documents were discoverable business records not covered by the privilege.

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Posted in Privilege

Federal Court in Delaware Rejects Road Signage Supplier’s Claim Under Delaware Construction Prompt Payment Act, Holding that Act Applies Only to Construction of Buildings

VSI Sales, LLC v. Griffin Sign, Inc., 2014 U.S. Dist. LEXIS 57620 (D. Del. Apr. 25, 2014).
The Delaware Department of Transportation awarded a contract for a highway construction project. Defendant Griffin Sign, Inc. (“Griffin”) was hired as the subcontractor responsible for installation of road signage on the project. Griffin then subcontracted with Plaintiff VSI Sales, LLC (“VSI”) for the supply of overhead highway sign structures, accompanying hardware, and installation materials.

A dispute arose regarding VSI’s right to payment for work performed on the project. Griffin disputed that it owed VSI payment and contended that VSI’s performance was untimely and deficient. In its seven count complaint against Griffin and its payment bond surety, VSI asserted a claim for violation of the Delaware Construction Prompt Payment Act, Del. C. §§ 3501-3509. The defendants sought to dismiss the Payment Act claim on the basis that the work performed by Griffin and VSI—the supply and installation of highway signs—was outside the scope of the Act.

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Posted in Prompt Payment Act