Material Supplier Deemed to Have Contracted with “Subcontractor” to Permit Claim Against “Miller Act” Bond

United States ex rel. E&H Steel Corp. v. C. Pyramid Enters., Inc., 509 F.3d 184 (3d Cir. 2007)

This litigation arose after a steel supplier on a U.S. government construction project asserted a claim against a payment bond issued by the general contractor (to which it had no contractual privity) pursuant to the Miller Act (40 U.S.C. § 3131).  Because the Miller Act limits the availability of such bond claims to either entities in contractual privity with the bond issuer (the GC) or those entities having contractual privity with a "subcontractor,” the key issue was whether the entity with which the supplier contracted was a “subcontractor.”  The District Court for the District of New Jersey, applying a number of a factors, determined that it was not a subcontractor and dismissed the bond claim.  

On appeal, the Third Circuit reversed.  It determined that the entity was a “subcontractor” under the Miller Act, thus permitting the steel supplier to assert a bond claim against the GC’s payment bond.  The Third Circuit rejected, as determinative, such factors as the “label” applied to the agreement (i.e. "purchase order”) and the complexity of the material supplied.  Instead, the court focused on the substantiality of the relationship between the GC and the alleged “subcontractor.”  Notably, the court considered the fact that the steel was a specific and critical component of the project, the “alleged subcontractor” supplied extensive attention, oversight and shop drawings, and performed design-assist engineering.

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