The decision of Guarantee Company of North America USA v. Ikhana, LLC, 2019 U.S. App. LEXIS 32351 (Fed. Cir. October 29, 2019) is not particularly remarkable in that the Court of Appeals for the Federal Circuit held that a surety that entered into a takeover agreement with the Government has standing to sue the United States under the Contract Disputes Act, but only as to claims that arose after the execution of the takeover agreement. A concurring opinion in the case agreed with this principle, but used its opinion to suggest that a surety that remedies a default by some other means (other than a takeover agreement) should have standing under the Contract Disputes Act.
In the case, a contractor contracted with the Army Corps of Engineers to build a remote screening facility at the Pentagon. The surety provided performance and payment bonds pursuant to the Miller Act. The project experienced several stoppages and contract modifications causing delays and cost overruns. The contractor submitted claims seeking additional time and compensation. The Corps ultimately declared the contractor in default and terminated its right to proceed under the contract. It made a claim under the performance bond. The contractor appealed the termination with the Armed Services Board of Contract Appeals. The surety, pursuant to its settlement rights under the general indemnity agreement with the contractor, reached a settlement with the Corps and agreed to “cause the dismissal” of the contractor’s appeal with the Board. The surety moved to intervene in the matter before the Board and sought to withdraw the contractor’s appeal before the Board on the grounds that contractor had assigned all contractual claims to the surety under the indemnity agreement. The Board denied the motion and held that the surety did not have standing. The surety appealed.
The Court of Appeals assessed whether the surety could have directly appealed the contracting officer's decisions to the Board under the Contract Disputes Act. The Court stated that the surety must be in contractual privity with the government in order to have standing under the Contract Disputes Act. The Court noted that such standing is found when the surety has entered into a takeover agreement with the government, but only with respect to claims arising after the agreement. The claims at issue arose before the agreement. The Court affirmed the judgment of the Board that the surety did not have standing and that the motion to intervene should be denied.
A concurring opinion raised concern regarding the rationale of the underlying case precedent that supported the decision. In particular, the concurring opinion stated that the underlying precedent, Fireman’s Fund Ins. Co. v. England, 313 F.3d 1344 (Fed. Cir. 2002) and Admiralty Construction v. Dalton, 156 F.3d 1217 (Fed. Cir. 1998), bring into conflict government contracting law with principles of suretyship. Fireman’s Fund held that a surety that entered into a takeover agreement was in privity with the government and had standing under the Contracts Disputes Act. Admiralty held that a surety that carries out the defaulted contract by some other means is not in privity with the government and may not bring a claim under the Contracts Disputes Act. The opinion noted that the legislative history of the Contract Disputes Act emphasized the importance of have only a single contractor eligible to appeal claims before the Board. The concurring opinion noted that when a contractor defaults, the surety stands in its place. Thus, there is no concern of having multiple parties sue the Government, regardless of how a surety remedies a default. The opinion invited the Court of Appeals to review its precedent and reconsider whether a surety that provides a remedy by a means other than a takeover agreement should have standing under the Contract Disputes Act.
Florida Waiver/Release Bill Introduced
In Florida, Senate Bill 868 has been prefiled for the 2020 session. It has been referred to the relevant committees for consideration. The Bill seeks to amend the waiver provisions in the state’s Little Miller Act, Section 255.05, Florida Statutes. Currently, the law provides a form of waiver by which a subcontractor waives its right to make a claim under the payment bond in exchange for a progress payment. The law states that a waiver that contains provisions that are not substantially similar to the statutory form are enforceable according to its terms. Section 255.05(2)(f), Florida Statutes. The Bill amends paragraph (f) to state that provisions “not related” to the waiver in Section 255.05 are unenforceable. As revised, paragraph (f) would state:
A provision in a waiver or a release executed on or after July 1, 2020, which is not related to the waiver or release of a claim against the payment bond as contemplated in this subsection is unenforceable.
If enacted, contractors (and their payment bond sureties) would need to pay strict attention to the form of waiver used.