US District Court for Middle District of Pennsylvania Holds Course of Performance May Vitiate Partial Payment Releases and Delay Costs May Be Recovered Under Federal Miller Act Payment Bond

U.S. ex rel Pioneer Construction v. Pride Enterprises
2009 U.S. Dist. LEXIS 110935 (M.D. Pa., November 27, 2009)

The court denied the contractor’s claim for summary judgment, which was based on the theory that the subcontractor’s claims were barred by the releases it submitted with partial payment requests, holding that the contractor’s submission of the subcontractor’s claims to the government as part of an equitable adjustment request supported an inference that the parties by course of performance did not regard the releases as barring the claims. Further, the court held that notwithstanding Pennsylvania law to the contrary, federal law allows recovery of delay costs under a Miller Act payment bond.

The U.S. National Parks Service (“NPS”) awarded Defendant, Pride Enterprises, Inc. (“Pride”) a contract for construction and site improvements at the Grey Towers National Historic Landmark in Pike County, Pennsylvania. Great American Insurance Company provided a payment bond to Pride for the project. Pride subcontracted certain work to Pioneer Construction Company (“Pioneer”). Article 2.3 of the subcontract required Pioneer to furnish a release of all liens and claims arising out of the work as a condition to receiving any partial or final payment.

Pioneer submitted periodic payment applications during the project and, in some instances, Pride paid Pioneer without requiring submission of releases required by Article 2.3. However, Pioneer did sign at least fifteen partial releases during the course of the Project. In submitting the releases, Pioneer did not insert any language limiting the scope of or otherwise exempting any delay claims from the language of the release.

The project was delayed by 520 days. Before Pioneer demobilized, Pride contacted Pioneer regarding the project delays and requested Pioneer’s assistance in documenting a delay claim against the NPS. In response, Pioneer sent Pride its claim for equitable adjustment. Pride indicated that the claim should be treated as a certified claim under the Contract Disputes Act. Pride never advised Pioneer that the Claim would not be certified because it was barred by any partial release. Thereafter, the NPS Contracting Office denied Pioneer’s claim, stating that, although Pioneer did incur delays, the Government compensated Pride for delays, including delays incurred by Pioneer, through bilateral modifications that contained releases from Pride.

Pioneer filed suit against Pride seeking to recover its delay costs. Pride filed a motion for summary judgment, asserting that the partial releases signed by Pioneer barred its claim for delay damages. The Court held that the parties’ course of conduct during the Project, including Pride’s failure to require a release to accompany the first three payments and its encouraging Pioneer to prepare a delay claim supported an inference that the parties did not intend the release clause to bar future claims. The Court held that a question of fact remained regarding the interpretation of the partial releases, and thus, it denied Pride’s motion for summary judgment.

The Court also rejected Great American’s contention that delay damages cannot be recovered from a surety. The Court found Pennsylvania state law cases refusing to hold a surety liable for delay damages to be unpersuasive, as the bond was issued under the Miller Act. Citing to decisions of the Eastern District of Pennsylvania, as well as decisions of the various Courts of Appeals, the Court held that delay damages should be viewed as compensation for the increased costs of labor, services and materials – items for which payment is guaranteed by a bond. Thus, the Court held that the purpose of the Miller Act would be maintained by allowing a Pioneer to seek delay damages from Great American.

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