By Brian Padove
Changes related to the COVID-19 crisis and the construction and surety industries are still occurring; some data in this article may have changed from the time of article submission and the publication date.
A good rule of thumb is generally always to be proactive rather than reactive. Whether it is “measuring twice and cutting once,” “confirming all the t’s are crossed and i’s are dotted,” or whether it is simply complying with any relevant laws and regulations, the rule of being proactive is generally widely accepted and practical for all aspects of a bond producer’s, surety’s, or contractor’s business. With that said, it is always good to have a strong grasp on current laws and regulations affecting the surety bond industry, and almost no other law impacts this industry more, on a national level, than the Miller Act, 40 U.S.C. §§ 3131 et seq., which provides the general framework of laws relating to surety bonds on federal construction projects as well as claims on said bonds.
The intent of the Miller Act payment bond was and is to protect those whose labor and materials go into public projects, and as such, when faced with legal questions under the Miller Act payment bond, courts will generally give liberal construction to the Miller Act’s remedial provisions. However, courts have repeatedly determined that the specified notice provision and requirements of the Miller Act are stringent requirements compelling strict compliance therewith in order to properly bring a claim against a bond. In A&C Construction & Installation Co., v. Zurich American Insurance Co., 963 F.3d 705 (7th Cir. June 30, 2020) (A&C Construction), the Seventh Circuit recently confirmed this long-standing precedent by affirming the U.S. District Court for the Northern District of Illinois’s holding on summary judgment that a sub-subcontractor missed its Miller Act notice requirement deadlines thereby eliminating its ability to bring a cause of action on a payment bond against the surety because the sub-subcontractor provided notice of its claim well before 90 days from its last date of work. This recent decision highlights the importance of contractors, subcontractors, and suppliers complying with the strict notice requirements relating to payment bond claims under the Miller Act, even if said claimant arguably provides too much notice of its potential bond claim.
The Miller Act and Its Notice Requirements
Section 3133 of the Miller Act sets forth the requirements that claimants must follow in order to bring a civil action on a payment bond. In relevant part, for sub-subcontractors/material suppliers, section 3133 provides two express timing requirements necessary in order to maintain and bring an action on a payment bond under the Miller Act: (1) notice of its payment bond claim to the prime contractor within 90 days of last performing work or supplying material, and (2) a one-year limitation period in which a lawsuit must be brought.
With regard to the notice requirement, in order to bring a civil action on the payment bond, a sub-subcontractor/material supplier must provide “written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made.” Likewise, if payment it still not made to the claimant after the required notice is given, then the claimant has one year after the day on which the last of the labor was performed or material was supplied by the claimant to bring a cause of action under the bond.
While the statutes are relatively unambiguous, issues often arise, such as what constitutes “last” performance of work, whether the content of the notice was sufficient, and whether the notice was timely. The last issue was addressed in A&C Construction.
A&C Construction involved a federal construction project for the construction of two billets in the Blatchford-Preston Complex at Al-Udeid Air Base in Qatar (Project). AMEC Foster Wheeler Environment & Infrastructure, Inc. (AMEC) entered into a contract with the Army Corps of Engineers to serve as the prime contractor on the Project, and in accordance with the Miller Act, AMEC, as principal, and Zurich American Insurance Company and The Insurance Company of the State of Pennsylvania (Sureties) executed and delivered a payment bond for the Project (Payment Bond). Thereafter, AMEC subcontracted certain mechanical work to Black Cat Engineering & Construction (Black Cat), which subsequently subcontracted with Plaintiff, A&C Construction & Installation (A&C).
After some time, the relationship between Black Cat and A&C deteriorated to a point where Black Cat eventually terminated A&C in late 2015; but A&C continued to perform its own actual work on the Project until May 16, 2016. On August 16, 2016, A&C provided a Miller Act notice of non-payment alleging that, as of that date, it was owed $8,449,710. A&C, however, allegedly continued to provide work and equipment to the Project because: (1) its equipment remained on the Project site for Black Cat’s use; and (2) A&C provided supervision of one of its subcontractors through the Project’s completion date of February 28, 2017. Thereafter, A&C filed its lawsuit in the district court on June 7, 2017, for recovery of damages under the Payment Bond.
Northern District of Illinois Decision
After filing suit, the Sureties moved for summary judgment, arguing that A&C was barred from bringing a Miller Act claim because A&C failed to comply with the Miller Act timing requirements. Specifically, the Sureties argued, among other things, that (1) the time between A&C’s last date of its own actual work, which the Sureties argued was May 16, 2016, and the date upon which the notice was served (August 16, 2016), totaled 91 days and thus was untimely; (2) the lawsuit was filed on June 7, 2017–one year and 22 days after May 16, 2016; and (3) to the extent the district court agreed that A&C continued providing equipment and/or work through February 28, 2017, then A&C’s August 16, 2016 notice was not within 90 days of February 28, 2017. In response, A&C argued that the lawsuit was timely because the last date it worked and/or furnished equipment was February 28, 2017. A&C also argued that, even though the August 16, 2016 notice was served more than 90 days prior to the last provision of work, it placed the prime contractor and Sureties on notice of A&C’s claim of unpaid labor and materials–in essence, A&C argued it provided “too much notice” of its claims.
The district court rejected A&C’s arguments and granted summary judgment in favor of the Sureties. In ruling in the Sureties’ favor, the district court relied, in part, on a strict view of the Miller Act’s time provisions. First, with regard to May 16, 2016, as the date on which A&C last provided labor or materials, the court noted that, even if the notice provided on August 16, 2016 was timely, A&C failed to file its lawsuit within one year of May 16, 2016. Second, the court held that even if it assumed that February 28, 2017, was the last date of work, the Miller Act required A&C to provide notice within 90 days of that date (by May 29, 2017), which A&C failed to do. As such, in addressing A&C’s final “too much notice” argument, the district court found that, while the prime contractor and Sureties may have been on notice of potential claims by A&C, the August 16, 2016 notice did not meet the strictly construed notice requirements under the Miller Act, which are conditions precedent to filing a suit against the Sureties.
Seventh Circuit Decision
A&C appealed the district court’s ruling to the Seventh Circuit. Relying, in part, on its “too much notice” argument, A&C asserted that the District Court erred in granting summary judgment in the Sureties’ favor because, among other things: (1) its August 16, 2016 notice was timely given; (2) it performed work through February 28, 2017; and (3) the lawsuit filed on June 7, 2017 was timely.
Although the Seventh Circuit noted that the Sureties and A&C disputed the correct date of the last work performed, the Seventh Circuit found that it was not necessary to determine the final date for appellate purposes. Instead, it assumed (just as the district court had done) that A&C’s last date of work, for purposes of the bond claim, was February 28, 2017. Following this assumption, the Seventh Circuit held that there was no dispute that A&C served its Miller Act notice on August 16, 2016. The Seventh Circuit then took a strict view of the “unambiguous” nature of the Miller Act’s notice requirement and found that the Miller Act notice must be given “within 90 days” of the assumed last date of work, February 28, 2017. Accordingly, the Seventh Circuit rejected A&C’s “too much notice” argument and held that the August 16, 2016 notice was not technically within 90 days of the February 28, 2017 date. As such, A&C failed to timely serve its Miller Act notice, and thus, could not maintain an action against the Sureties on the Payment Bond.
In its conclusion, the Seventh Circuit noted that the Miller Act aims to protect subcontractors against nonpayment. The Seventh Circuit went on to note, however, that the Miller Act “demands strict compliance with certain conditions precedent to the right to recover.” Consequently, given the facts at hand, the Seventh Circuit stated it was left with the “straightforward” question of whether A&C could sue on the bond if A&C did not comply with the requirement to provide notice within 90 days of the date A&C said it completed its work (February 28, 2017). Because the undisputed facts were that A&C did not provide such notice within 90 days of February 28, 2017, the answer was clear: no, A&C could not sue on the payment bond. As such, the court affirmed the district court’s ruling and emphasized that the Miller Act’s timing requirements relating to notice must be strictly adhered to.
The A&C Construction decision addressed the peculiar issue of a contractor providing its notice more than 90 days prior to the last date on which it performed work and furnished material on a project. Thus, given that the contractor provided notice “too early” (rather than giving notice too late and/or not at all), the contractor argued that, in taking a liberal construction of the Miller Act, the notice was proper because the sureties were still on notice of the claim well before the 90-day post-work deadline had passed. The Seventh Circuit, however, was unpersuaded by the contractor’s “too much notice” argument and found that “too much notice” was no notice at all under the Miller Act. This decision highlights a key exception to the Miller Act’s general rule of liberal construction—namely, one must have strict compliance with the notice and statute of limitations provisions of the Miller Act.
Accordingly, the key concepts to take away from this ruling are two-fold. First, while a good rule of thumb is to be proactive when it comes to bond claims, one must still comply with the Miller Act’s express requirements. For contractors, as in the A&C Construction case, while it is important to provide notice under the Miller Act when payments are not received, contractors must provide subsequent notice and/or be sure it provides notice within 90 days of last performing work or furnishing material to the project. Second, it is incumbent upon all parties to a bond claim to keep precise records of when the contractor last performed work and/or furnished material to a project, as such information is critical to the initial evaluation of a bond claim: specifically, if the notice date is not within that 90-day timeframe, a surety may be able to take a strict view of the Miller Act provisions and deny any such claim as being untimely.
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Brian Padove is an associate attorney in the Chicago office of Watt, Tieder, Hoffar, & Fitzgerald LLP licensed in Illinois, Indiana, and Wisconsin. Padove focuses his practice primarily in the areas of construction, surety bond, and commercial litigation. He can be reached at [email protected] or 312.219.6900.