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Sub-subcontractor Recourse on Government Project Where No Bond Obtained

Government project overseas. All subcontractor and sub-subcontractor work performed in the USA. GC paid subcontractor for all of sub-subcontractor's work and finished materials. Subcontractor refuses to pay sub-subcontractor. Sub-subcontractor makes Miller Act claim notice. GC responds that no bond was issued or required -- asserts requirement waived under overseas project exception of 40 U.S.C. 3131(d). What recourse does the sub-subcontractor have? Obviously, no lien could be obtained on government contract. Can sub-subcontractor pursue claim against GC for failure to obtain bond, if the exception was not proper?

2 replies

Sep 18, 2017

As noted, 40 U.S.C. 3131(d) holds that "[a] contracting officer may waive the requirement of a performance bond and payment bond for work under a contract that is to be performed in a foreign country if the officer finds that it is impracticable for the contractor to furnish the bonds."

Whether or not, in this specific case, the failure to obtain a bond was appropriate is a question of fact - 1) whether the contracting officer waived the requirement, and 2) whether, if so, that waiver was appropriate given the location of the work. While, if actually required to obtain the bond under the Miller Act, the GC would have been in breach of its contract with the government (and could have been terminated for breach of the contract), subs or sub-subs can't recover from the government for the GC's failure to obtain the required bond. It is a different story, slightly, regarding claims against the GC - but recovery by a sub-sub through the GC (other than through a bond claim) is difficult at best, and many such arguments are disallowed in most states.

That being said, however, to the extent that a bond was required, the failure to do so had a direct impact on you as a sub-sub and your ability to recover, since it is not a defense that a GC paid its first-tier subcontractor for the work for which a second-tier subcontractor is seeking payment. It may be worth making a claim against the GC as well as the sub in order to attempt to prompt payment. Prior to doing so, however, it would be a good idea to talk to an attorney that can spend more time looking over your documentation and researching to the precut to see if a waiver of bond requirements under 40 U.S.C. 3131(d) appears to be appropriate.

Obviously, if you are unpaid for the work you did, there is an action directly against the subcontractor that owes you money.

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