Federal Circuit Confirms Miller Act Applies Even If Omitted from Contract.
Kilpatrick Townsend Partner, Lawrence M. ProsenOn November 5, 2018, the U.S. Court of Appeals for the Federal Circuit (“Court”) confirmed something that many of us in the Federal Government Construction Contracts industry always understood was the law, namely that even where an agency omits the Miller Act bonding provisions contained in the Federal Acquisition Regulations (“FAR”) for Federal government contracts, the Miller Act bonding obligations still apply. The Miller Act, 40 U.S.C. §§3131 et seq., as discussed in FAR Clause 52.228-15, “Performance and Payment Bonds-Construction”, mandates that contractors on federal government construction projects valued at over $150,000 provide payment and performance bonds (“P&P Bonds”) to assure that the work in question is fully performed and subcontractors and vendors (down to the second level of subcontracting) are paid. This law arose out of the fact that due to sovereign immunity, subcontractors and vendors cannot file mechanic’s liens on Federal real property, thus a need to assure payment through a different vehicle, here a payment bond, was necessitated. In this case, Appellant, K-Con, was awarded two contracts by the U.S. Army for pre-engineered metal buildings. The underlying awards were based upon the Contacting Officer using the General Services Administration’s eBuy system, under which neither solicitation included the aforementioned Miller Act provisions. Following award, the Army directed K-Con to provide payment and performance bonds prior to the Army’s issuance of the Notices to Proceed (“NTPs”). It was only two years later that K-Con provided these bonds. The NTPs were issued by the Army thereafter. During this time it argued that because the Miller Act provisions were not in the contracts, K-Con was not required to provide bonds. The NTPs were delayed by the Army for this two year period, resulting in material and labor cost increases totaling $116,000. A claim for these additional costs was submitted to, and thereafter denied by, the contracting officer. On appeal, the Armed Services Board of Contract Appeals (“ASBCA”) found that the Miller Act, and the FAR provision enabling it, was incorporated as a matter of law under the Christian Doctrine. Created in the 1960s, this doctrine was first articulated in G.L. Christian & Associates v. United States, 312 F.3d 418, 424-26 (Ct.Cl. 1963). That doctrine holds that certain regulatory provisions are incorporated into government contracts as a matter of law or public policy even if not explicitly referenced or cited therein. As a result, the ASBCA rejected K-Con’s claim for additional monies for the delays. On further appeal to the Federal Circuit, K-Con raised two arguments, both of which were rejected by the Court. First, K-Con argued that because the Contract was let under the GSA eBuy program, the item was a “commercial item” which did not mandate the provision of bonding. Agreeing with the government, the Federal Circuit concluded that if there was any question or ambiguity as to the “type” of contract, it was patent (i.e., open and obvious such that a reasonable bidder should have found it and inquired prior to bidding). As such, K-Con had an affirmative obligation to inquire pre-award as to whether the Miller Act applied. While the Army admitted that if it had used the standard construction contract form the bonding requirement would have been included automatically, that does not matter, as the as-issued solicitation indicated in a number of locations that this was for construction and not mere supplies or services. This was further supported by the fact that the contracts included the Davis-Bacon Act, which mandates the payment of prevailing wages on construction projects. Given the inclusion of these provisions, this created a patent ambiguity. K-Con’s failure to inquire and seek clarification pre-award acted as a waiver to this argument. Secondly, K-Con argued that even if properly considered construction contracts, neither contract explicitly included the Miller Act Clause. The Court then discussed the Christian Doctrine, which is well known to government contracts attorneys but not so much contractors. Under this Doctrine, where a regulation exists, the Court can incorporate the clause into the contract as an operation of law (recognizing that regulations have the force and effect of law) where: