“The Miller Act represents a congressional effort to protect persons supplying labor and material in a federal public building or public work projects in lieu of the protection they might receive under state statutes with respect to non-federal projects.”[efn_note]United States ex rel. D&P Corp. v. Transamerica Ins. Co., 881 F.Supp. 1505, 1508 (D. Kan. 1995).[/efn_note] The Miller Act requires that before any contract of more than $100,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government, a prime contractor must obtain and furnish a performance bond and payment bond to the Federal Government.[efn_note]40 U.S.C. § 3131.[/efn_note]
The Miller Act creates a private cause of action (in the name of the United States for the use of the person bringing the action) for every person that “has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under [S]ection 3131 … and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made….”[efn_note]40 U.S.C. § 3133.[/efn_note]
A common question I am asked by contractors and subcontractors in the context of a Miller Act claim is whether lost profits are recoverable under the Miller Act. Generally speaking, the Federal circuit courts are split as to whether lost profits are recoverable under the Miller Act in cases where labor and materials are furnished.
In the case of Transamerica Ins. Co., for instance, the court held that a “party can recover lost profits if the lost profits can be established with reasonable certainty.”[efn_note]881 F. Supp. 1505, 1509 (D. Kan. 1995) (Tenth Circuit).[/efn_note] The case of United States ex rel. Reichenbach v. Montgomery, which is a case from the Federal District Court for the Eastern District of Pennsylvania, similarly held that subcontractors were entitled to the reasonable value of labor and materials furnished including subcontractors’ profit.
[efn_note]155 F. Supp. 384 (E.D. Pa. 1957), aff’d, 253 F.2d 427 (3d Cir. 1958).[/efn_note]
This is good news for subcontractors furnishing labor or materials for public projects in the Philadelphia area.
Conversely, however, in the case of Consolidated Electrical & Mechanical Inc. v. Biggs General Contracting, Inc., the Eighth Circuit joined the Fifth, Ninth, and Eleventh Circuits in holding that “the Miller Act does not contemplate lost profits.”[efn_note]167 F.3d 432, 435-36 (8th Cir. 1999).[/efn_note] The court in Consolidated Electrical & Mechanical, Inc. reasoned that “[t]he Miller Act was not meant to replace subcontractors’ state law contract remedies, which allow for recovery of lost profits. Rather, it provides subcontractors an additional remedy to recover costs expended in furnishing ‘labor or material in the prosecution of the work provided for in [a public construction] contract.’ ”
[efn_note]Id. at 436.[/efn_note]
I have also been asked what happens if a prime contractor breaches the contract, but the subcontractor has not yet furnished labor or materials in carrying out the work provided for in the contract? Can a subcontractor recover lost profits on work not performed under the contract where there is a breach? The short answer to that question is likely no given the plain language of the Miller which requires a subcontractor to “furnish labor and material” before maintaining a claim under the Miller Act. Although, subcontractors may still bring a state law breach of contract claim against a prime contractor to recover lost profits in the event of a contractual breach.
As an experienced civil litigator and member of MacElree Harvey’s Litigation Practice Group, Patrick J. Gallo, Jr. (PJ) concentrates his practice on complex commercial, construction, products liability, insurance coverage, and business litigation.
To learn more about PJ’s practice or to schedule a meeting, call (610) 840-0246 or send an email to [email protected].