United States of America ex rel D&M General Contracting, Inc v. Arch Ins. Co.
2013 U.S. Dist. LEXIS 111260 (D. Md. Aug. 5, 2013)

This action arose out of subcontractor’s claim for increased costs allegedly incurred as a result of delays on a federal government project. NTVI Enterprises, LLC (“NTVI”), as general contractor, entered into an agreement with the government to upgrade the chiller plant for a National Security Agency facility (the “Project”). NTVI posted a labor and material payment bond for the Project (the “Bond”) issued by Arch Insurance Company (“Arch”). NTVI then subcontracted with D&M General Contracting, Inc. (“D&M”) to perform electrical work on the Project. Midway through the Project, D&M alleged that the sequence of its work was altered by the government resulting in an additional $206,674.07 in costs to D&M. Pursuant to the Miller Act, D&M filed suit against Arch, as surety, to recover under the Bond its increased costs allegedly incurred.

Arch moved for summary judgment and argued that the Miller Act claim was barred by the statute of limitations. Under the Miller Act, subcontractors have a federal cause of action to collect on a surety bond, but such an action “must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.” D&M filed its claim on January 8, 2013.

Arch first argued that D&M’s claim was untimely because it had not performed “significant” work or work that was “crucial to the operation of the Project” within one year of bringing suit. The Court, however, held that this was not the applicable standard. The Court stated that “[t]he standard in this ‘and the majority of circuits’…is only whether ‘the work was performed and the material supplied as part of the original contract or for the purposes of correcting defects or making repairs following inspection of the Project.’”

Arch insisted that October 27, 2011, over fourteen months prior to the January 8, 2013 filing of D&M’s claim, was the last date on which D&M performed “labor under the contract.” In defense of its claim, D&M adduced evidence showing that in January and March, within one year of bringing suit, it conducted (1) “black start testing and commissioning” which it contended “was an inspection and testing requirement of the base contract”; (2) a lighting inspection “required by the base contract”; (3) the installation of a surge protector during the inspection required by the original contract; (4) the removal of a previously installed function on certain breakers at the request of the government; and (5) a modification to the fire alarm system and final testing of the system as directed by the government. Nonetheless, Arch insisted that these items were remedial or corrective and merely ancillary to the original subcontract and, thus, they could not be used in calculating the statute of limitations period.

The Court agreed with Arch that the last two items may well be remedial or corrective given that they appeared to be secondary projects that were completed after inspection at the government’s request, and not during D&M’s initial completion of its contractual obligations. However, the Court found that the first three items “may have been work ‘performed…as a part of the original contract,’ even though the work appear[ed] to have been primarily in the nature of inspections and testing.” The Court reasoned that while the work was not necessarily principal labor under the subcontract, it was still part of D&M’s original contractual charge and did not occur “following inspection” for the purpose of remediation or repair. The Court surveyed other district Court decisions addressing the issue and determined that testing conducted by a contractor that is part of the initial completion of a subcontract is not “remedial” and can be counted in calculating the statute of limitations. Therefore, the Court found that a genuine issue of material fact remained as to whether D&M’s work was “part of the original contract” such that the one-year statute of limitations did not begin until the work was completed. If so, the Court concluded, D&M’s Miller Act claim would be timely. Accordingly, the Court denied Arch’s motion for summary judgment.