Federal Court Clarifies When Idle Equipment Costs Are Recoverable Under the Miller Act
United States ex rel. Am. Civ. Constr., LLC v. Hirani Eng'g & Land Surveying, P.C., 2018 U.S. Dist. LEXIS 200829 (D.D.C. Nov. 28, 2018).
The case involved the construction of a levee wall on the National Mall in Washington, DC. In September 2010, the Army Corps of Engineers awarded Hirani Engineering & Land Surveying, P.C. ("Hirani") the prime contract for the project. Hirani's surety was Colonial Surety Company ("Colonial"). Hirani subcontracted the majority of the work to American Civil Construction, LLC ("ACC"). Following a series of disputes and project delays, the Army Corps of Engineers terminated Hirani. ACC then filed suit in the United States District Court for the District of Columbia seeking over $2 million in damages under the Miller Act as well as state law for breach of contract. After a bench trial, the court entered judgment in favor of ACC.
As part of its claim, ACC sought damages for costs related to idle equipment at the project site. Although the claim was only a small part of ACC's overall claim, the court's approach was noteworthy. ACC asserted that all of the costs were recoverable under the Miller Act. Conversely, Hirani and Colonial argued that standby equipment expenses were per se unavailable under the Act. The court disagreed with both parties and held that, although the Miller Act permitted a contractor to recover for idle equipment, it could not do so in all instances.
As part of its analysis, the court first referred to the original language of the Miller Act which permits a contractor who "furnish[es] labor or materials in carrying out work provided for in a contract" to recover damages. The court then distinguished between two scenarios involving idle equipment. In the first scenario, the court described a case in which a contractor brought a piece of equipment to the work site and used it over a period of weeks, but not every day. In the second scenario, the court described an instance in which a contractor brought the same piece of equipment to the site, but the equipment remained idle for 60 days before it was used. According to the court, under the first scenario, "the equipment reasonably can be treated as 'furnished' 'in carrying out the work' even on those days it is in non-use" and, therefore, the contractor would be permitted to recover those idle equipment costs under the Miller Act. However, the same would not hold true for the second scenario because, according to the court:
If a contractor brings a piece of equipment to the job site and it sits unused for two months, absent some reasonable explanation for its non-use during such an extended period, the contractor cannot be said to have "furnished" the equipment "in carrying out work."
In light of this analysis, and upon reviewing a summary of standby costs sought by ACC, the court concluded that only around 28% of ACC's standby costs fell into the category of regularly used equipment to justify their recovery under the Miller Act.
Reprinted with permission.
R. Zachary Torres-Fowler, Esq., is an associate in the Construction Practice Group of Pepper Hamilton LLP. Torres-Fowler concentrates his practice in construction-related disputes and has extensive experience in domestic and international arbitration matters arising from projects located around the world. He represents owners, EPC contractors and equipment manufacturers in disputes arising from a wide variety of construction projects, including power plants, airports, commercial buildings and other civil infrastructure works.