Court: Bonding Required in Federal Contracts, Even If Not Spelled Out
A U.S. appeals court ruled that contractor K-Con, which builds pre-engineered structures for federal and military clients such as this for the US Coast Guard, should have provided bonds on two Army contracts.
image: K-Con websiteIn a Nov. 5 decision, a federal appeals court rejected a contractor’s argument that it did not have to include payment bonds on two U.S. Army building projects because the federal contract rule was not expressly noted in the solicitation or its contracts.
The U.S. Court of Appeals for the Federal Circuit ruled that K-Con Inc., a Charleston, S.C., design-build contractor that specializes in pre-engineered structures for government, military and commercial clients, was required to post performance and payment bonds for subcontractors and vendors on its Army projects, even though the mandate—under the Miller Act, which covers contracts valued at more than $150,000—was not directly stated.
K-Con had argued the bonds were not included or required because the contracts for pre-engineered metal buildings were issued under the U.S. General Services Administration eBuy system for commercial supplies. The Army admitted not using the standard construction contract with bonding provisions, but said the K-Con contracts included separate federal construction requirements under the Davis-Bacon Act to pay prevailing wages.
The Army required the bonds before it would issue a notice to proceed. The notice was delayed two years until K-Con provided bonds. The firm then sought payment of $116,336 to cover the delay cost. It was denied and the company appealed.
A contract appeals board said the bonding rule was incorporated into the contracts under the so-called Christian doctrine, based on a 1960s-era legal case. It said certain regulatory provisions are incorporated into federal contracts by law or public policy, even if not explicitly stated.
The appellate ruling upheld the board and “settles, seemingly once and for all, that even if omitted by accident, Miller Act bonds are required,” said Lawrence Prosen, attorney at Kilpatrick Townsend & Stockton. He said this also could apply to state or local construction contracts that follow the Christian doctrine.
The ruling also showed that contractors need to seek clarity if a solicitation is ambiguous. Failure to do so “may prevent a contractor from subsequently using the ambiguity to its advantage when filing a claim,” said James Tucker, an attorney at Morrison Foerster.
K-Con, which did not respond to a request for comment on the ruling, says on its website that a large portion of its work is for the federal government.
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