As unpaid subcontractors and suppliers cannot lien federal projects, the Miller Act was adopted to ensure payment bonds would guarantee payment of those providing labor or material to federal jobs. Contractors and their bonding companies have argued that “pay if paid” clauses or “no damage for delay” clauses in subcontracts can be utilized to insulate themselves from a payment bond claim on federal projects.
But the overwhelming weight of federal cases support the proposition that the Miller Act trumps exculpatory clauses or up front waivers in subcontracts. For example, in Moore Bros. Co. v. Brown & Root, Inc., 207 F. 3d 717 (4th Cir.2000), the Court rejected the “pay if paid” defense advanced by the surety, explaining that:
…the very purpose of securing a surety bond contract is to ensure that claimants who perform work are paid for their work in the event the principal does not pay. To suggest that non-payment by the Owner absolves the surety of its obligation is nonsensical, for it defeats the very purpose of a payment bond.
Other cases have found similarly with respect to “no damage for delay” clauses.
The Courts basically allow recovery by any subcontractor satisfying the Miller Act, regardless of the exculpatory language in the subcontract.
We recently filed an amicus brief for the American Subcontractors Association in the U.S. Court of Appeals for the Fourth District advocating this position with respect to a Virginia case where a “no damage for delay” clause was used as a defense to a delay and impact claim against a Miller Act bond.