As any reader of Construction Law Musings knows, payment bond claims are a big part of my law practice. You have also likely read through the federal cases relating to the Miller Act that you 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 exercise.
Another recent case continues this trend. In Hanover Ins. Co. v. Blueridge General Inc. the U. S. District Court for the Eastern District of Virginia considered set off rights of a general contractor in the following situation. The defendant in this case, Blueridge General Inc was forced to terminate a masonry subcontractor on two separate projects. In the construction project at issue in the current case, Hanover Insurance Co., completed the masonry subcontractor’s work at Langley Air Force Base and then sought payment for that work from Blueridge.
In defense of the claim by Hanover, Blueridge sought to offset the claim by the amount that it spent to complete work for that same masonry subcontractor on a separate contract to which Hanover had no connection. Despite the fact that Blueridge had a contractual clause allowing it to offset payments on one job with that subcontractor by amounts owed it by that subcontractor on other projects, the Court denied Blueridge’s offset claim.
The Court looked at the Completion Agreement between the Surety and the General Contractor and determined that this agreement was a separate agreement from the subcontracts between Blueridge and the masonry contractor. After performing this analysis, the Court stated as follows:
Given the language of the Completion Agreement, and the surety’s status as a performing surety subrogated to the obligee’s rights to the remaining subcontract balance, Blueridge’s contractual setoff argument fails, and the survey is entitled to summary judgment on the portion of its claim seeking funds withheld on the Western Branch [the second project] debt.
In short, Blueridge found out that bonded and un-bonded projects do not necessarily mix for setoff purposes.
What do you think of this case? Is it correct in its reasoning? Let me know once you’ve had a chance to review the full case report (linked above) with a comment below.
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