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.