Pay-When-Paid Provision Does Not Waive Federal Miller Act Rights

In an important victory won by ASA member attorney Ben Shapiro, the
U.S. District Court for the Northern District of Georgia, Atlanta
Division, ruled Jan. 29 that pay-when-paid provisions do not waive a
subcontractor’s right of recovery under the Miller Act. The court’s
decision reflects the major modernization of the Miller Act championed
by ASA in the Construction Industry Payment Protection Act of 1999,
namely that of prohibiting prime contractors from requiring
subcontractors to waive their payment bond rights prior to commencement
of work.

In McKenny’s, Inc., v. Government Technical Services, LLC,
McKenny’s (subcontractor) entered into a contract with general
contractor Government Technical Services (GTS) to do work on a project.
After completing its work under the contract, McKinney’s billed GTS in
the amount of $66,950. After failing to receive timely payment from
GTS, McKenney’s notified the Gray Insurance Company, which issued the
payment bond for the project, that payment was overdue. Pursuant to the
Miller Act’s stipulation, which states that a subcontractor can sue for
payment "if it has not been paid in full within 90 days of completing
its work, and may collect judgment on the bond for the amount due,"
McKenny’s subsequently brought suit against both GTS and Gray
Insurance. Gray Insurance argued that the pay-when-paid clause in the
subcontract agreement precluded its liability to the subcontractor
under the payment bond as a matter of law, because GTS had yet to be
paid by the government.

The district court ruled in favor
of McKenny’s, citing the Miller Act’s bar of contractual waivers of the
right to recover under the bond: "The pay-when-paid provision of the
contract did not bar the subcontractor’s recovery against the surety,
even through the prime contractor had not yet been paid."

Source: American Subcontractors Association

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