Under the Miller Act, 40 U.S.C. §§ 3131 et seq., contractors hired to work on federal construction projects are required to furnish payment bonds in order to ensure payment to certain persons that provide labor for the project. The United States Court of Appeals for the Fourth Circuit recently issued a published decision clarifying the type of work that qualifies as “labor” under the Miller Act. Elliot Dickson v. Fidelity and Deposit Company (issued April 26, 2023).
In that case, the U.S. Department of Defense hired Forney Enterprises (Forney) as the prime contractor on a renovation project at the Pentagon. Forney retained Fidelity and Deposit Company of Maryland (Fidelity) to provide the required Miller Act payment bond. Forney then entered into a subcontract with Elliott Dickson (Dickson), a professional engineer, to work as a project manager on the contract. Dickson primarily supervised labor on the site, but also performed other tasks, including logistical and clerical duties, taking various field measurements, cleaning the worksite, moving tools and materials, and sometimes even watering the concrete himself. Dickson’s work required him to be onsite on a daily basis.
In December 2018, the Government terminated its contract with Forney, and directed Forney to stop work and cleanup the site. Dickson assisted Forney in this regard, and his last day on site was February 8, 2019, when he performed a materials inventory. On January 10, 2019, Dickson submitted a claim to Fidelity for approximately $400,000 for his work on the project. Over a year later, on January 14, 2020, Fidelity denied the claim because Dickson had not performed “labor” as required for recovery under the Miller Act. Fidelity asked Dickson to resubmit his claim and to remove all hours worked “off-site, as well as those performed on-site relating to clerical and administrative tasks.” Dickson did not submit a revised claim, and instead sued Fidelity under the Miller Act on February 5, 2020. The District Court granted summary judgment for Fidelity holding that Dickson’s work did not qualify as “labor” under the Miller Act because supervisory work is generally not “labor.” The District Court also found that the one-year statute of limitations under the Miller Act barred the claim because the lawsuit was brought more than one year after Dickson last performed “labor” on the project, and that Fidelity’s offer to Dickson to resubmit the claim did not extend that deadline.
After reviewing the history of the Miller Act and its predecessor, the Heard Act, the U.S. Court of Appeals for the Fourth Circuit determined that the supervisory work performed by Dickson did qualify as labor under the Miller Act because the bulk of Dickson’s work involved both direction and supervision of manual labor and occasional performance of manual labor. Dickson’s supervisory work, which continued through January 2019, was therefore characterized as Miller Act “labor.” However, the Fourth Circuit agreed with the District Court that the statute of limitation barred Dickson’s claim. The Miller Act statute of limitations runs “one year after the day on which the last of the labor was performed.” § 3133(b)(4) (emphasis added). The Fourth Circuit concluded that the only on-site work performed by Dickson within one-year of filing suit was taking a final inventory in February 2019, which did not involve any supervisory work, and thus did not constitute “labor” under the Miller Act. In reaching its decision, the court drew a distinction between “work of a professional character” and “manual labor”, and stated that it is not enough that an act is technically “physical,” but must rise to “exertion” or “toil.” The court also rejected Dickson’s argument that Fidelity should be estopped from enforcing the one-year limitations period because of Fidelity’s invitation for Dickson to submit a revised claim, finding that there were no promises to pay by Fidelity or negotiations on the claim.[1]
[1] Judge Floyd wrote a dissenting opinion in which he concluded that the definition of “labor” should be more liberally construed to include “mental exertion,” and thus the final inventory taken by Dickson should have been considered “labor,” thus making the lawsuit timely.
In Lodge Construction, Inc. v. United States, the US Court of Federal Claims (“COFC”) prefaced its 46-page opinion by stating: “This case should serve as a cautionary tale to government contractors.”[1] Our ears perk up any time we read that kind of admonition in a published decision. The Lodge holding is, indeed, loaded with lessons on what to do, and what not to do, when presenting Contract Disputes Act (“CDA”) claims to the government. In particular, federal construction contractors and their performance bond sureties should take heed of the court’s holding in this highly-illustrative fraud case.
The federal Miller Act requires government construction contracts over $100,000 to be bonded. This process involves insurance companies, known as “sureties,” who issue payment or performance bonds to contractors, who in turn furnish the required bonds to the federal government. The bonds guarantee that the contractor will comply with the terms of the contract and perform as required. Although the sureties do not interact directly with the federal government, a recent decision from the US District Court in DC suggests that sureties could face liability where the bonded contractor violates the civil False Claims Act (“FCA”), 31 U.S.C. § 3729. In Scollick ex rel. United States v. Narula, No. 1:14-CV-01339-RCL, 2022 WL 3020936 (D.D.C. July 29, 2022) the court held, under the facts of that case, that the sureties had no knowledge of the fraud allegedly committed by the bonded contractor, and thus did not violate the FCA. Although the sureties escaped in this instance, this case demonstrates the expansive reach of the FCA and puts the insurance industry on notice that they are not immune from FCA liability.