United States Court of Appeals, Eleventh Circuit

918 F.
2d 915
36 Cont.Cas.Fed. (CCH) 75,979
UNITED STATES, for Use and Benefit of PERTUN

CONSTRUCTION
COMPANY, Plaintiff-Appellee,
v.
HARVESTERS GROUP, INC., Defendant,
National Union Fire Insurance Company of Pittsburgh, Pa.,
Defendant-Appellant.
Nos. 89-5601, 89-6041.
United States Court of Appeals,

Eleventh Circuit.
Dec. 7, 1990.
J. Steven Hudson, Kimbrell & Hamann, P.A., Miami, Fla., for defendantappellant.
Jon C. Moyle, Jr., Steel Hector & Davis, Miami, Fla., for plaintiffappellee.
Appeals from the United States District Court for the Southern District of
Florida.
Before ANDERSON and EDMONDSON, Circuit Judges, and MORGAN,
Senior Circuit Judge.
EDMONDSON, Circuit Judge:
This Miller Act case presents two basic questions on appeal. The first is a
matter of first impression in this circuit: When a prime contractor causes delay
in the progress of a federal government project, can the subcontractor recover
from the prime contractor's Miller Act surety for the increases, resulting from
the delay, in its actual expenditures for labor and material actually supplied to
the project? And the second is an issue of contract interpretation and
application: Assuming recovery from the surety for the costs of delay is
generally available under the Miller Act, will the subcontractor's recovery
nonetheless be barred if the subcontract agreement provides that the
subcontractor's sole remedy for delay will be an extension of time to perform,
but the prime contractor has in fact wrongfully prevented the subcontractor
from completing performance? We hold that the Miller Act allows recovery
from the surety for increased out-of-pocket costs caused by delay and that the
subcontract provision regarding no damages for delay does not preclude
recovery under these circumstances. We therefore affirm the bulk of the district
court's award below.1 Because we find the district court's determination of
additional costs incurred due to pre-commencement delay clearly erroneous,
however, we reduce the damage award by $1,200, from $69,376.71 to
$68,176.71.2
2
Harvesters Group, Inc. (hereinafter Harvesters) entered into a prime contract

with the Navy to construct improvements at the United States Navy and Marine
Corps Reserve Training Center in Miami, Florida. In accordance with the
Miller Act, 40 U.S.C.A. Secs. 270a-270d, Harvesters secured a payment bond
in the amount of $1,517,600 from Appellant National Union Fire Insurance Co.
of Pittsburgh, Pa. (hereinafter National Union). Harvesters then entered into a
subcontract with Appellee Pertun Construction Co. (hereinafter Pertun), a
concrete forming subcontractor, under which Pertun was to perform concrete
work necessary for the federal project. Paragraph 3(f) of the subcontract
provided that if the prime contractor delayed the subcontractor's work, the
subcontractor would be granted an extension of time to perform, but that such
extension of time would preclude other claims by the subcontractor on account
of the delay.
The Navy training center project had lots of problems. Toxic wastes were
discovered, the job site lacked running water and electricity, and Harvesters
experienced difficulties in finding subcontractors to perform parts of the work,
in obtaining necessary permits, and in obtaining timely submittals of documents
required by the Navy. As a result of these difficulties, construction was delayed
from the outset. After construction commenced, Harvesters' failure to supervise,
schedule, and coordinate the work of the various subcontractors properly
caused further delays--delays which increased the labor and equipment rental
costs of Pertun. Then, when Pertun's concrete work was eighty percent
finished, its participation in the project was wrongfully terminated by
Harvesters. Pertun was not permitted to return to the job site, either to complete
performance or to retrieve its tools and materials.
As Harvesters' surety pursuant to the Miller Act payment bond, Appellant

National Union has admitted liability to Appellee Pertun for "work in place"--
work Pertun performed, but had not yet been paid for. The parties stipulated
this amount to be $34,593: the difference between $226,605, the value of the
labor and materials provided by Pertun to the project, and $192,012, the
amount Pertun had already been paid. In the meantime, however, some of
Pertun's unpaid suppliers had themselves filed claims against the bond;
National Union thus sought setoffs--for payments made to Pertun's unpaid
suppliers, as well as for payments withheld by the Navy due to defects in
Pertun's work--against the $34,593 admittedly owed Pertun for work in place.
Pertun contested the validity and extent of the claimed setoffs and also asserted
the right to an additional award to cover the increased costs it incurred as a
result of delay.
5
After a bench trial, the district court rejected the majority of National Union's
claimed setoffs and granted Pertun's request for additional damages to cover
costs incurred due to delay. The resulting final judgment was for $69,376.71:
$25,329.60 for work in place; $900.00 for Pertun's equipment and materials
which Harvesters retained and incorporated into the project; and $43,147.11 for
increased costs of labor and equipment rentals caused by the delay. The district
court also granted Pertun's motion for reasonable attorney's fees and costs. As
noted above, this opinion will focus on the portion of damages awarded for
increased costs caused by delay.
61. Damages for delay under the Miller Act.

7
The purpose of a Miller Act payment bond is to protect subcontractors and

suppliers who provide labor and material for a federal project, because
federally owned lands or buildings are exempt from the liens that would
normally secure these parties' rights under state law. United States f/u/b/o
Sherman v. Carter, 353 U.S. 210, 216, 77 S.Ct. 793, 797, 1 L.Ed.2d 776 (1957);
see 40 U.S.C.A. Secs. 270a-270b. To effectuate this congressional intent, the
Miller Act is to be liberally construed and applied. F.D. Rich Co., Inc. v. United
States f/u/b/o Industrial Lumber Co., Inc., 417 U.S. 116, 124, 94 S.Ct. 2157,
2162, 40 L.Ed.2d 703 (1974). But a liberal construction does not mean that the
Miller Act establishes an unlimited basis for recovery; courts have held that the
Miller Act surety is not liable for damages caused by the prime contractor's
breach of contract. See, e.g., United States f/u/b/o Edward E. Morgan Co., Inc.
v. Maryland Casualty Co., 147 F.2d 423 (5th Cir.1945); L.P. Friedstedt Co. v.
U.S. Fireproofing Co., 125 F.2d 1010 (10th Cir.1942) (applying Heard Act,
predecessor of Miller Act). Thus, for example, in the present case National
Union would not be liable to Pertun for profits lost as the result of Harvester's
premature and wrongful termination of the subcontract. See Arthur N. Olive
Co. v. United States f/u/b/o Marino, 297 F.2d 70 (1st Cir.1961). It would be
liable, on the other hand, for any "sum or sums justly due" Pertun for labor or
material furnished in the performance of its agreement to work on the public
project. See 40 U.S.C.A. Sec. 270b(a) (1986).
8
In the court below, Pertun sought and received "damages for delay." Despite
the possibly misleading use of the term "damages," this award represented
compensation for Pertun's increased out-of-pocket costs caused by the delay
for labor and materials Pertun actually furnished in performing its contractual
obligation. The essential question presented thus becomes: are these increased
costs "sums justly due" for labor and materials provided or are they really
damages for the prime contractor's breach? Because we conclude that these
increased costs of performance are "sums justly due" rather than damages for
breach, we affirm the district court judgment holding National Union as the
Miller Act surety liable for these additional out-of-pocket expenses.
Although the liability of a Miller Act surety for increased costs caused by delay
has not yet been directly addressed by this court,3 several courts have granted
such awards. See United States f/u/b/o Heller Elec. Co. v. William
Klingensmith, Inc., 670 F.2d 1227 (D.C.Cir.1982); United States f/u/b/o Otis
Elevator Co. v. Piracci, 405 F.Supp. 908 (D.D.C.1975); United States f/u/b/o
Mariana v. Piracci Const. Co., Inc., 405 F.Supp. 904 (D.D.C.1975). Others
(including a district court for the Southern District of Florida construing a
Florida statute analogous to the Miller Act) have gone the other way,
disallowing damages for delay as beyond the scope of the bond. See, e.g.,
Friestedt, 125 F.2d at 1011-12; W.S.A. Inc. v. Stratton, 680 F.Supp. 375
(S.D.Fla.1988); Lite-Air Products, Inc. v. F & D of Maryland, 437 F.Supp. 801
(E.D.Pa.1977) (also construing state statute analogous to Miller Act). We find
the logic of the former cases--and particularly the reasoning set forth in
Mariana--more persuasive. See Mariana, 405 F.Supp. at 906-07.
10
Surety liability for out-of-pocket costs of delay is consistent with both the
language and the purpose of the Miller Act. The statute provides for recovery
of the costs of labor and materials furnished or used by the subcontractor in
performing contractual obligations. Only by allowing a full recovery of these
costs, including those portions caused by delay, can the purpose of the statute-to afford the subcontractor the financial protection of an action against the
surety--be achieved. If the surety is not liable for the portion of costs caused by
delay, the subcontractor will either have to bear the burden himself or rely on
his remedy for breach of contract against the prime contractor. And it was
Congress's view of the inadequacy of these very alternatives to assure full
payment for labor and materials actually supplied to a federal project that
prompted the enactment of the Miller Act. See id.
11
National Union calls our attention to United States f/u/b/o Edward E. Morgan
Co., Inc. v. Maryland Casualty Co., 147 F.2d 423 (5th Cir.1945), a former Fifth
Circuit decision denying a subcontractor's claim against a government
contractor's bond for the rental or use value of the subcontractor's equipment
left idling at the job site during an unexpected thirty-one day delay. Appellant
cites this case for the proposition that a subcontractor cannot recover on the
bond for costs of delays unforeseeable at the time of contracting and then
points out that the district court in the present case, in the context of holding the
"no damages for delay" clause of the subcontract unenforceable (see footnote 4
infra ), explicitly found the specific delays suffered by Harvesters and Pertun
unforeseeable. Thus, National Union argues, the additional costs caused by
these unforeseeable delays cannot be recovered from the Miller Act surety
under Morgan.
12
National Union's reliance on Morgan is misplaced. As an initial matter, we are

unconvinced that a finding of fact that specific causes and types of delay were
unforeseeable necessitates the conclusion that delay of a general nature was not
contemplated or foreseen. Even if we assume that parties to a modern-day
construction contract could fail to contemplate delay, however, Morgan would
not control. The subcontractor in Morgan sought to recover for the rental or use
value of equipment it actually owned, rather than the out-of-pocket increased
cost of equipment rentals and labor sought and recovered by Pertun. The use
value of its own equipment sought by the Morgan subcontractor is far more
analogous to lost profits--for which recovery against the surety is not allowed-than to actual expenditures for labor or materials utilized in the performance of
the subcontract--for which it is.
13
Thus, based on both the language and the underlying policies of the Miller Act,
we hold that a Miller Act surety's liability for any "sum or sums justly due" for
labor or materials furnished in the performance of its agreement to work on the
public project includes liability for all out-of-pocket expenditures for that labor
or material, including additional or increased expenditures caused by delay.
2. Effect of contractual provision limiting the subcontractor's remedy for delay.

14
15
Paragraph 3(f) of the subcontract between Harvesters and Pertun provides:
16
Should
SUBCONTRACTOR be delayed in the prosecution of the work by the act,
neglect or default of CONTRACTOR, owner or architect, or by any damage caused
by fire, lightning, earthquake, cyclone, or any casualty for which
SUBCONTRACTOR is not responsible, then the time fixed for the completion of
the work pursuant to the terms of the agreement shall be extended for a period
equivalent to the time lost by reason of the cause aforesaid.... SUBCONTRACTOR

agrees that such extension of time for completing the work precludes, satisfies and
cancels any and all other claims on account of such delay.
17
Based on this provision, National Union contends that even if (as we have held
above) there is a general rule permitting surety liability for increased costs of
delay, Pertun should nonetheless be unable to recover such costs under the
circumstances of this case. By signing a subcontract containing the abovequoted clause, National Union argues, Pertun assumed the risks of delay and
effectively waived its right to pursue a remedy for delay beyond an extension of
time to perform.
18
Although this action was brought under the Miller Act, the effect and validity
of the contractual clause purportedly limiting the subcontractor's remedy for
delay is governed by the law of Florida, the state in which the agreement was
executed and was to be performed. United States f/u/b/o Seminole Sheet Metal
v. SCI, Inc., 828 F.2d 671, 675 (11th Cir.1987). And under Florida law, "no
damages for delay" clauses are generally valid and enforceable. Id.
19
Thus, the "no damages for delay" clause--if that is what this clause really is--is
not unenforceable in Florida as a matter of public policy. A close reading of the
quoted provision reveals, however, that it does not simply state that the
subcontractor shall receive "no damages for delay"; instead, the subcontractor's
agreement to assume the risks of delay and to waive its damages remedy is
specifically conditioned upon the contractor's extension of time for completion
of the subcontractor's work. Yet the district court found that Harvesters either
did not grant an extension of time to make up for the delay or granted it in such
a manner as to render it meaningless. The lower court found that Harvesters
wrongfully and prematurely terminated Pertun's participation in the project,
preventing Pertun from completing performance. National Union does not
challenge these factual findings on appeal; instead, Appellant's arguments on
this issue focus on the general validity of "no damages for delay" provisions
under Florida law and the absence of circumstances which would render one of
the recognized exceptions to enforceability applicable.4 Because Pertun's
contractual waiver of its damages remedy was limited by a condition precedent-the extension of time to complete performance--which was neither fulfilled nor
excused, we hold that it cannot operate to preclude Pertun's recovery.5
Summary
20
For these reasons, we affirm the district court's award below, but reduce the
amount of damages by $1,200, from $69,376.71 to $68,176.71, to correct the
district court's clear error in calculating additional costs incurred by Pertun due
to pre-commencement delay. We also grant Pertun's motion for attorney's fees
on appeal. See United States f/u/b/o Sherman v. Carter, 353 U.S. 210, 77 S.Ct.
793, 1 L.Ed.2d 776 (1957).
21
AFFIRMED in part, and REVERSED in part.
Appellant-surety National Union raises several additional arguments: (1) it

challenges the amount of the award granted appellee-subcontractor Pertun for
work in place at the time Pertun's participation in the project was terminated;
(2) it contends that a single Miller Act award should not combine contractual or
value-based damages with cost-based damages; and (3) it suggests that, to the
extent the district court's final judgment in Pertun's favor is reversed on appeal,
the award of attorney's fees to Pertun should also be reversed because such fees
would not constitute "sums justly due" under the Miller Act. See 40 U.S.C.A.
Sec. 270b(a)
National Union's first argument, challenging the amount of the award for work
in place, actually goes to several factual determinations made by the district
court. These determinations involve the validity and extent of certain setoffs
claimed by the surety for payments it made to Pertun's unpaid suppliers, as well
as the incorporation into the project of tools and materials left on the site by
Pertun. Because these findings of fact are not clearly erroneous, this challenge
must fail. See Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105
S.Ct. 1504, 84 L.Ed.2d 518 (1985); Fed.R.Civ.P. 52(a). National Union's
argument regarding the mixing of value and cost-based damages in a single
Miller Act award was raised for the first time on appeal, and we decline to
consider it. See United States f/u/b/o Micro-King Co. v. Community Science
Tech., 574 F.2d 1292 (5th Cir.1978) (reviewing court does not consider issue
raised for first time on appeal, except where pure question of law is involved
and refusal to consider it would result in miscarriage of justice). The success of
National Union's third argument depends on the success of the rest of its appeal.
Because we uphold almost all of the district court's award, we also affirm its
grant of attorney's fees below. See United States f/u/b/o Sherman v. Carter, 353
U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957).
The entirety of the $4,800 awarded below for pre-commencement delay

damages represents increased costs incurred for supervisory personnel: 16
weeks (the period of pre-commencement delay as determined by the district
court) times $300 (the difference between the weekly salary Pertun was
contractually obligated to pay the supervisor hired for this project and the value
of his work as a laborer on another project). The supervisor whose salary

constituted the increased cost was not hired until four weeks into the period of
pre-commencement delay, however; thus, the $1,200 awarded for this four
week period when his salary was not paid was clearly erroneous
3
In an unreported district court opinion, United States f/u/b/o Gray-Bar Elec. Co.
v. J.H. Copeland & Sons Constr., Inc., Case No. 75-253-Civ-FAY
(S.D.Fla.1976), the district court awarded damages, including costs of delay, in
an action brought by a subcontractor against both the prime contractor and his
Miller Act surety. The former Fifth Circuit affirmed this award without
specifically discussing the issue of a surety's liability for delay damages under
the Miller Act. See United States f/u/b/o Gray-bar Elec. Co. v. J.H. Copeland &
Sons Constr., Inc., 568 F.2d 1159 (5th Cir.1978)
The district court concluded, as we do, that Pertun's waiver of a damages

remedy was unenforceable due to Harvester's failure to grant an extension of
time to perform. It then went on, however, to set forth alternative grounds for
unenforceability: the unforeseeability of the delays involved and the "active
interference" of the contractor. Because we base our decision on the failure of
the condition precedent, we do not address the possible application of these
exceptions to enforceability
Appellant also calls our attention to paragraph 3(g) of the subcontract, which
states that the contractor shall not be liable to the subcontractor for delays
resulting from any cause beyond the contractor's control. The district court
found, however, that the delays were caused by Harvester's failure to supervise,
schedule, and coordinate the work, and this finding is not clearly erroneous.
Whether or not such conduct on the part of the contractor would constitute
"active interference" so as to render the "no damages for delay" clause
unenforceable under Florida law (a question we do not decide), it is sufficient to
take the case outside the category of delays resulting from causes beyond the
contractor's control. The provision is therefore not applicable

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918 F.

UNITED STATES, for Use and Benefit of PERTUN

United States Court of Appeals,

Harvesters Group, Inc. (hereinafter Harvesters) entered into a prime contract

As Harvesters' surety pursuant to the Miller Act payment bond, Appellant

61. Damages for delay under the Miller Act.

The purpose of a Miller Act payment bond is to protect subcontractors and

National Union's reliance on Morgan is misplaced. As an initial matter, we are

2. Effect of contractual provision limiting the subcontractor's remedy for delay.

Paragraph 3(f) of the subcontract between Harvesters and Pertun provides:

equivalent to the time lost by reason of the cause aforesaid.... SUBCONTRACTOR

AFFIRMED in part, and REVERSED in part.

Appellant-surety National Union raises several additional arguments: (1) it

The entirety of the $4,800 awarded below for pre-commencement delay

of his work as a laborer on another project). The supervisor whose salary

The district court concluded, as we do, that Pertun's waiver of a damages

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