Federal District Court Rules Pay-When-Paid Provision Does Not Waive Federal Miller Act Rights - February 2008
In an important victory won by ASA member attorney Ben Shapiro, the U.S. District Court for the Northern District of Georgia, Atlanta Division, ruled Jan. 29 that pay-when-paid provisions do not waive a subcontractor's right of recovery under the Miller Act. The court's decision reflects the major modernization of the Miller Act championed by ASA in the Construction Industry Payment Protection Act of 1999, namely that of prohibiting prime contractors from requiring subcontractors to waive their payment bond rights prior to commencement of work. In McKenny's, Inc., v. Government Technical Services, LLC, McKenny's (subcontractor) entered into a contract with general contractor Government Technical Services (GTS) to do work on a project. After completing its work under the contract, McKinney's billed GTS in the amount of $66,950. After failing to receive timely payment from GTS, McKenney's notified the Gray Insurance Company, which issued the payment bond for the project, that payment was overdue. Pursuant to the Miller Act's stipulation, which states that a subcontractor can sue for payment "if it has not been paid in full within ninety days of completing its work, and may collect judgment on the bond for the amount due," McKenny's subsequently brought suit against both GTS and Gray Insurance. Gray Insurance argued that the pay-when-paid clause in the subcontract agreement precluded its liability to the subcontractor under the payment bond as a matter of law, because GTS had yet to be paid by the government. The district court ruled in favor of McKenny's, citing the Miller Act's bar of contractual waivers of the right to recover under the bond: "The pay-when-paid provision of the contract did not bar the subcontractor's recovery against the surety, even through the prime contractor had not yet been paid." For more information, contact ASA Manager of Communications Matthew Cass at (703) 684-3450, Ext. 1317, or mcass@asa-hq.com.
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