As the Construction Payment Blog has discussed before the Miller Act can sometimes be confusing, especially as to which parties are enabled to make a claim. While the Miller Act is very broad about the what type of labor and/or materials give rise to a claim (nearly everything furnished to a federal construction project) it is very strict about which project tiers are protected. The following parties are disallowed from making a Miller Act claim:
Prime contractors, those who have a direct contract with the federal entity commissioning the work, do not have any rights under the US Miller Act. Instead, these parties have the obligation to post the payment bond against which other parties may make claims in the event of nonpayment.
Suppliers to Suppliers also do not have any claim rights under the Miller Act, although they do not incur any obligations through the Miller Act, either. Suppliers to suppliers should be used to this type of non-protection, as suppliers to suppliers rarely have a lien remedy of any kind available.
Finally, 3rd tier subcontractors (and below) are also excluded from Miller Act project. The protection line is drawn at sub-subs. This means that subcontractors who contract with a subcontractor are eligible for protection, but subcontractors who contract with a sub-subcontractor, and anyone further below in the contracting chain, are not.
Even when this is understood, however, knowing if a claim can be made is dependent upon knowing what tier a particular party inhabits – and this can sometimes be harder than anticipated, as such a situation was recently examined by a U.S. district court in California.
In Frontier Contr. Inc. v. Allen Eng’g Contr., Inc., 2014 U.S. Dist. LEXIS 136474 (E.D. Cal. Sept. 2014), the court examined a situation in which the role of a party attempting to make a Miller Act claim could not be easily determined. Frontier Contracting, Inc. (“Frontier”) and Allen Engineering Contractor, Inc. “Allen”), entered into a teaming agreement in order to perform work on federal highway projects located in national parks. After a payment dispute in which Allen refused to fully pay Frontier, Frontier made a claim for payment based, in part, on the Miller Act.
The nature of the teaming agreement between Allen and Frontier created some difficulties in determining whether or not the Miller Act was a proper vehicle for protection and recovery, however. Allen alleged that the teaming agreement created a joint venture between the two parties, which, since the Miller Act requires some tiered relationship, would preclude Frontier’s ability to recover by that means. Frontier, however, argued that rather than part of a joint venture, it was actually a subcontractor on the projects, such that a Miller Act claim was the appropriate remedy and means to recovery.
The court heard the arguments either way as part of a summary judgment motion by Allen to dismiss the Miller Act claim. The court, however, determined that there were issues of fact regarding whether the relationship was better defined as a joint venture or as a contractor/subcontractor relationship, and denied the summary judgment motion. n the eyes of the court, the teaming agreement could have created either type of relationship because, while there was some language in the agreement that provided for splitting profits and joint ownership of assets, other language specifically denied that the agreement should be deemed to constitute a joint venture. Since the Code of Federal Regulations sets forth that teaming agreements can create partnerships, joint ventures or subcontractor relationships – more facts were needed before a determination of the particular status of this relationship could be determined.
While the court denied the motion that the relationship was a joint venture by the face of the teaming agreement alone, it also did not determine that the relationship was necessarily that of a contractor/sub.
Whether Frontier is properly classified as a joint venture participant, or a subcontractor is vitally important to its Miller Act claim, because of the strict nature (discussed above) as to which parties qualify for Miller Act protection.