In the U.S. Department of Army v. Blue Fox Inc. case, the court chose to allow a contract without requiring Miller Act bonds, which ultimately left the construction subcontractor unprotected. Citing the doctrine of sovereign immunity, the court ruled that subcontractors cannot file for an equitable lien against the government.
"It is unfortunate that Miller Act bonds were not available to protect this subcontractor," said Stephen Sandherr, executive vice president and CEO of the Associated General Contractors of America. "This case does not diminish subcontractor protections of the Miller Act. If this contract had been classified as a construction project, the subcontractor would have had a financial remedy through the prime contractor's surety."
The Plumbing-Heating-Cooling-Con-tractors - National Association and other trade organizations petitioned the court Dec. 1 to side with Blue Fox. A Supreme Court ruling in favor of Blue Fox would have made the federal government accountable for its mistakes, and ensured that subcontractors would be paid for their work on federal projects.
Blue Fox, a subcontracting firm working on an army depot in Oregon, was not paid for its work after the prime contractor went bankrupt. The Army's contracting officer failed to require the prime contractor to secure a Miller Act bond.
Blue Fox sued the Department of Army for the money owed to them for the work completed, but the Army argued they did not have to pay. The Army said the blame fell to the prime contractor, and that they could not be sued under the doctrine of sovereign immunity, which holds that the federal government cannot be sued for money damages unless Congress has passed a law permitting the suit.
Sandherr believes this case was a ruling on sovereign immunity, however, and not the Miller Act.
The Miller Act was passed in 1935 to protect the government and subcontractor in the event a prime contractor defaults. Prime contractors must secure two types of Miller Act bonds. Payment bonds ensure payment of the subcontractor, while performance bonds protect the government.
"Bonding ensures payment of construction subcontractors," Sandherr said. "The ability to secure a bond is the prime indicator of a contractor's ability to complete quality work on time and under budget."