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Federal District Court in Virginia Holds That Prime Contractor's Payment Bond Surety Cannot Rely on No-Damages-For-Delay Clause in Subcontract to Limit Liability to Subcontractor Under Miller Act

United States v. John C. Grimberg Co., Case No. 1:16-cv-991, 2017 U.S. Dist. LEXIS 173362 (E.D. Virginia, October 19, 2017)

Author: Luke Nicholas Eaton

12/14/2017

Read the full post at Constructlaw

Federal District Court in Virginia Holds That Prime Contractor's Payment Bond Surety Cannot Rely on No-Damages-For-Delay Clause in Subcontract to Limit Liability to Subcontractor Under Miller Act

John C. Grimberg (Prime Contractor) was awarded a contract (the Prime Contract) to design and complete certain improvements at the FBI Academy in Quantico, Virginia (the Project). Hartford Accident and Indemnity Company (Surety) issued payment and performance bonds for the Project pursuant to the Miller Act. The Prime Contractor thereafter entered into a subcontract (the Subcontract) with Kitchens-to-Go (Subcontractor) to furnish, install, lease and remove a temporary kitchen facility for the Project. The Subcontract contained a “no-damages-for-delay” clause, which provided that the Prime Contractor shall not be liable for delays beyond its control and that the Subcontractor is “entitled only to reimbursement for damages for delay actually recovered from the Owner.” The Subcontract also incorporated the dispute resolution procedures in the Prime Contract, which required that all “disputes arising out of Owner acts, omissions or responsibilities” be submitted through an administrative process with the government’s contracting officer under 41 U.S.C. §§7101 et. seq.

The Subcontract originally contemplated a Project duration of approximately 13 months, ending on April 5, 2014, but was ultimately extended until June 27, 2015. The Subcontractor submitted its Application for Payment to the Prime Contractor, which included $607,221 for extended rental of the kitchen facilities. Although the Prime Contractor submitted a payment request to US Department of the Navy (Owner), for the extended rental and use of Subcontractor’s temporary kitchen facilities, this request was rejected by the Owner. The Prime Contractor refused to pay Subcontractor’s Application for Payment and the Subcontractor filed a complaint against the Surety under the Miller Act.