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The Federal Prompt Pay Act Does Not Create A Private Right Of Action

Posted in Case Summaries

United States of Am. ex rel. IES Commercial, Inc. v. The Continental Ins. Co., Inc., Civ. Action No. 11-0985 (ESH), 2011 WL 4526018 (D.D.C. Sept. 30, 2011)

In this case, the court ruled that the Federal Prompt Payment Act (31 U.S.C. §§3901 et seq.) (the “PPA”) does not provide a subcontractor with an independent cause of action or an implied right of action against a Prime Contractor (or presumably its surety).

A prime contractor was awarded a contract by the United States Architect of the Capitol to perform certain design/build work on utility tunnels connecting the U.S. Capitol Power Plant to the Capitol.  Included was electrical work which was, in turn, subcontracted to the Plaintiff, IES Commercial, Inc. (“IES”) in the sum of $118,600.00.  Following disputes relating to certain changes and delays between the Prime and IES, IES sued the Prime’s Miller Act (40. U.S.C. §§3131 et seq.) payment bond surety.  Thereafter, the Prime intervened and IES sued the Prime for (a) breach of contract and (b) violation of the PPA.

Prime thereafter moved to dismiss this second, PPA-related, count arguing that (1) there is no private right of action under the PPA; (2) the fact that there was a payment-related dispute between the parties rendered the PPA inapplicable; and (3) because the Government had not yet paid the prime, the monies sought by IES were not yet due, thereby rendering any claim for monies premature.

In finding in favor of the Prime and dismissing the PPA count, the Court found that while the question of a private right of action under the PPA had not been determined in the District of Columbia, other jurisdictions had found that no right existed.  Moreover, while finding that Congress did envision “the PPA’s protections to be enforced in the same manner as other contractual disputes” (decision at 2, citations omitted), the court concluded that “neither the text of the PPA nor the legislative history reveal an intent to create a private right of action.”  While not expressly discussed, the implication is that as part of a breach of contract action, a PPA violation could be included, but not as an independent claim.

In a footnote, the Court also recognized that because the PPA was only applicable to payments earned based upon “satisfactory performance,” and given that there were disputes as to IES’s performance, the payments were disputed.  As payments were disputed, they were not subject to the PPA and its rights to interest payments.

It bears noting that the PPA (and related Federal Acquisition Regulations) are clear that if there is a dispute as relates to payments due and owing subcontracts, the Prime must notify the Sub (and if the subject monies were paid by the Government, then the Contracting Officer) of the dispute and the basis therefor.  The PPA and regulations provide certain obligations with regard to return of proceeds in hand to the Government while the Prime/Sub dispute is resolved, among other obligations.  Failure to follow those procedures, at least on federal projects, may subject the Prime to interest penalties owed to the Government (in addition to and separate from, the Sub).