Bonding companies often argue that payment is not yet due under a payment bond because of “pay if paid” clauses, alternative dispute resolution (“ADR”) requirements, or other provisions of subcontracts that purport to delay recovery until the resolution of the dispute between the Owner and Contractor.
But the case of Strittmutter Metro, LLC v. Fidelity and Deposit Company from the U.S. District Court for the District of Columbia, decided on September 30, 2016, found that the Subcontractor did not have to follow the dispute resolution provisions incorporated from the prime contract and could recover under the Payment Bond once unpaid for 90 days. The Court found that the Subcontractor was “under no obligation to await the resolution of the Prime Contractor’s claim.” The Court cited favorably other cases that found a “pay if paid” clause did not foreclose a Miller Act claim against the Prime (General) Contractor and its surety.
Cases like this one give Subcontractors ammunition to seek timely payment under “Little Miller Act” payment bonds (on state public projects) without waiting to exhaust ADR requirements, or resolution of the claims, or disputes between the Owner and Prime Contractor.
Courts deciding disputes on federal projects involving the Miller Act have declined to enforce “pay if paid” provisions and have allowed Subcontractors to recover under the payment bond once the requisite period of time has passed, such as United States v. Clark Construction Group, LLC, U.S. District Court, District of Maryland (August 15, 2016).
