No Miller Act Setoff for Non-Federal Claims

Originally posted 2009-08-05 09:00:00.

Miller Act Setoff CaseMusings is back! And a great case for subcontractors on federal projects came out of the U. S. District Court for the Eastern District of Virginia last month.

The Court in U. S. ex rel Acoustical Concepts, Inc. v. Travelers Casualty and Surety Co. of America, et. al. held that, despite language in the General Contractor’s contract allowing set-off for obligations based upon “any other contract or agreement,” Miller Act claims are not subject to setoff based on non federal projects.

This is clearly good news for subcontractors on federal projects. The Eastern District ruling essentially states that the Miller Act and the standard Miller Act bond form trumps any private contractual language as it relates to non-federal projects. The Court did not go further and expand its ruling beyond non federal projects, but the Acoustical Concepts ruling adds another layer of protection on federal projects for subcontractors and suppliers that do not have the protection of mechanic’s lien rights because of the nature of the project.

I’d love to hear from sureties, subcontractors and general contractors for their perspective on this ruling.

Should you find this Musing interesting, please subscribe and join the conversation with a comment below.

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8 Responses to No Miller Act Setoff for Non-Federal Claims
  1. Tim Hughes
    August 5, 2009 | 10:37 AM

    This is definitely a very interesting case. The Eastern District has some very tough rulings against sureties and this only continues the trend.

  2. Christopher G. Hill
    August 5, 2009 | 10:41 AM

    However, if the point of the Miller Act is to assure that subcontractors on Federal projects (without mechanic lien rights) have recourse to assure payment and therefore reason to bid on these low margin projects, the ruling could be seen as good public policy.

    On the other hand, it could either limit a surety's desire to be part of the process of Federal contracting or make sure that it keeps a better eye on the payment stream.

  3. nick
    August 21, 2009 | 11:24 AM

    Re-notification from sub to prime contractor in federal miller act case (90 days from last day .)
    What if the prime refuses to reply to or acknowledge any mail, e-mail. certified mail, etc?
    How does the court act on this matter?

  4. Christopher G. Hill
    Twitter:
    August 24, 2009 | 9:31 AM

    I think that the notice has to be certified in any event. If the reply card states “Refused” you know that you have fulfilled your duty under the notice provisions. If it comes back “not found” then it may get trickier, but you should be okay if you do what you need to under the statute.

  5. federal project
    March 29, 2010 | 8:33 AM

    [...] Committee approved more than $10 million for the three Iowa facilities last week. Confirmation …No Miller Act Setoff for Non-Federal Claims | Construction …A review of an interesting case from the Eastern District of Virginia relating to Miller Act bond [...]

  6. [...] short, this case continues the trend in Virginia federal courts of not allowing set off as a defense to Miller Act bond claims unless there is a direct contract between the general contractor and the bond claimant on the [...]

  7. […] find here.  On trend in these federal cases in the Virginia district courts is that determining set off rights on bonded federal projects is not necessarily and easy […]

  8. […] can find here. On trend in these federal cases in the Virginia district courts is that determining set off rights on bonded federal projects is not necessarily and easy […]

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About Musings

I am a construction lawyer in Richmond, Virginia, a LEED AP, and have been nominated by my peers to Virginia's Legal Elite in Construction Law on multiple occasions. I provide advice and assistance with mechanic's liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

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