Contractor Fault not Required for Subcontractor to Recover
by James R. Keller
This article appeared in St. Louis Construction News &
Review, p. 9, March-April, 2004.
The United States Court of Appeals for the Eighth Circuit
recently decided that the Miller Act does not require that a subcontractor,
using the total cost approach to recover damages, prove any fault by the
general contractor. The case is Lighting
& Power Services, Inc. v. Roberts, d/b/a Robinson Quality Constructors,
Inc. and United States Fidelity and Guaranty Co., 354 F.3d 817 (8th
Cir. 2004).
This result expands the possibilities of recovery by
subcontractors in construction projects involving the federal government.
The project was renovation work at Jefferson Barracks in St.
Louis, Missouri. Roberts was the
federal government's general contractor.
Lighting & Power Services (LPS) was Roberts' electrical
subcontractor.
The renovation work was supposed to take six months but due
to delays the work took twenty-two months to complete. There was no dispute that the government
caused the delays.
The Miller Act requires a general contractor to obtain a
payment bond on government contracts exceeding $100,000 to secure payment to
subcontractors for labor and materials they supply. A subcontractor cannot file a mechanic's lien on government
projects because a lien cannot attach to federal property.
Thus, the Miller Act provides the subcontractor with a
security interest similar to a mechanic's lien that could be placed on private
projects. The general contractor must
secure a payment bond before any contract will be awarded on a federal project.
LPS filed a lawsuit under the Miller Act, seeking to recover
$110,641 in additional costs incurred due to the government's delay. LPS used the total cost approach to
calculate its damages.
The trial court instructed the jury that total cost requires
proof that (1) it is impracticable for LPS to prove its actual losses directly,
(2) LPS's bid that was accepted by Roberts was reasonable, (3) LPS's actual
costs were reasonable, (4) Roberts had some responsibility in causing LPS's
actual losses, and (5) LPS incurred damages as a consequence.
A Total cost approach involves taking the actual costs
incurred by the subcontractor and subtracting any cost already paid to it on
the contract. The difference is
additional damage to the subcontractor.
The jury returned a verdict in favor of Roberts, the general
contractor. The dispute was whether the
trial court correctly instructed the jury that LPS had to prove that Roberts
had some responsibility in causing LPS's losses.
Since Roberts and LPS agreed that the government caused the
delays, it is easy to understand, given this instruction, why the jury entered
its verdict for Roberts.
Roberts argued that prior case law has defined a clear
requirement in total cost cases that the subcontractor prove that the general
contractor had some responsibility in causing the subcontractor's loss. Without such proof, the total cost method
will not allow recovery.
The Eighth Circuit examined several prior decisions where a
jury did have to find some responsibility on the general's part. The court distinguished these cases,
however, because they involved breach of contract where a subcontractor is
required to prove its losses resulted from the general's fault. The cases did not involve the Miller Act.
By contrast, under the Miller Act, a subcontractor expressly
does not have to prove any fault on the part of the general contractor. A Miller Act case requires different proof
from a breach of contract case, and the recovery is different, too.
For example, the court noted that Miller Act cases do not
allow recovery of lost profits when using the total cost approach. However, non-Miller Act cases generally
include reasonable lost profits.
Given these differences, the court concluded that a
subcontractor who uses the total cost approach in a Miller Act case will not be
required to prove any fault by the general contractor. In reaching this result, the court decided
that the total cost approach requires less proof in Miller Act cases than in
other cases, such as breach of contract.
This is a significant victory for subcontractors.
The Eighth Circuit then reversed the trial court's judgment
and sent the case back to the trial court for another trial. Presumably, the next jury will not be
required to find any fault on the part of Roberts. This change may alter dramatically the outcome.
James R. Keller is a partner at Herzog, Crebs & McGhee,
LLP, where he concentrates on complex business litigation, construction law and
alternative dispute resolution. He also
is an arbitrator with the American Arbitration Association and a mediator.
