Opinion ID: 2973422
Heading Depth: 2
Heading Rank: 2

Heading: Delay Claims

Text: The district court determined that, in general, claims for delay can be compensable under a bond if the language of the bond allows for recovery of delay claims. On appeal, Lexicon agrees with the district court’s finding that some delay claims may be compensable under a bond and 2 Indeed, in the district court, Lexicon appeared to argue that since Icon had submitted Lexicon’s claim to the arbitrator as a part of its claim against the general contractor and owner on the basis that Lexicon was claiming those charges as due to delay, the submission amounted to Icon’s and, thus, Safeco’s, recognition of the validity of Lexicon’s claim under the bond. No. 04-6086 Lexicon, Inc. v. Safeco Ins. Co. of America, Inc. Page 5 argues that its exhibits attached to its response to Safeco’s motion for summary judgment establish that its claims on the bond are for labor and materials necessary for the completion of the project caused by delays. Safeco argues that damages for a breach of contract are not compensable under a payment bond and that impact claims are similar to breach of contract claims, which are broader than labor and material. The rule with respect to whether delay claims are recoverable under a payment bond appears to be that labor and material costs caused by delay can be recovered under a payment bond. Mai Steel Servs. Inc. v. Blake Constr. Co., 981 F.2d 414, 418 (9th Cir. 1992) (The court limited the plaintiff’s recovery to “out-of-pocket labor and material costs.”);3 see also Tremack Co., v. Homestead Paving Co., 582 So. 2d 26 (Fla. Dist. Ct. App. 1991). Recovery for all labor and material costs, costs incurred, damages for delay not related to labor and materials, or for damages for breach of contract, may not be recovered. See U.S. ex rel. E. & R. Constr. Co., v. Guy H. James Constr. Co., 390 F. Supp. 1193, 1244 (M. D. Tenn. 1972) (“[T]he subcontractor[] does have a remedy against the surety for the recovery of the value of labor and materials supplied by him in the prosecution of the work covered by such a bond, even though they were required by reason of the breach or default of said prime contractor . . . .” Although the court also held that “[d]amages based on misrepresentation and delays are not within the legislative intent of 40 U.S.C. §§ 270(a)- 270(b),” and that “[a] subcontractor is not entitled to recover from the surety for losses suffered due to delays growing out of the acts or omissions of others.”) (internal citations and quotations omitted); U.S. ex rel. Edward E. Morgan Co., v. Md. Cas. Co., 147 F.2d 423, 425 (5th Cir. 1945); L.P. Friestedt Co. v. U.S. Fireproofing Co., 125 F.2d 1010, 1012 (10th Cir. 1942) (“We know of no case that has gone so far as to hold that one may recover damages for breach of a contract on a bond required under the Heard Act.”). Thus, in general, if a bond guarantees payment of labor and materials, a subcontractor may recover for additional labor and materials expenses caused by delay under the bond, but a sub-contractor may not recover for other non-labor or materials expenses or damages, nor may a party recover for a breach of contract under the bond. Because labor and material expenses caused by delay can, in general, be compensable, the language of the bond must be evaluated to determine if the bond itself provides limits on a subcontractor’s rights of recovery. The bond in this case guaranteed payment “for all labor and material used or reasonably required for use in the performance of the Contract.” J.A. at 146. The district court found that Lexicon had only vaguely described “the nature of the recovery” it sought. Id. at 925. According to the district court, Lexicon did not identify the “specific instances of labor and material for which it seeks payment under the bond.” Id. at 926. Instead, the district court, quoting Lexicon, found that Lexicon sought generic damages for things like administrative expenses and lost profits, neither of which would be covered under Safeco’s labor and materials bond.4 Id. Because Lexicon refused, as far as the district court understood, to enumerate its claimed labor and material expenses in any detail, the district court found that, “to the extent that the ‘delay and impact claims’ comprise expenses collateral to the labor and material actually used on the Project, they do not fall into the category of items recoverable under a payment bond for ‘labor and material used or reasonably required for use in the performance of the contract.’” Id. at 927. We are sympathetic with the district court’s apparent frustration. Lexicon is apparently reluctant to spell out exactly what monies it claims are still due for labor and material costs under 3 Although many of the cases cited in this opinion deal with Miller Act payment bonds, or the state equivalent of the Miller Act, neither party has offered a good reason why Miller Act cases are not, at the very least, persuasive in determining how the term labor and material in a common law payment bond should be interpreted, especially when neither party can cite to Kentucky common law authority on the question. 4 Those damages could probably, however, be awarded if Lexicon sued Icon for breach of contract and won. No. 04-6086 Lexicon, Inc. v. Safeco Ins. Co. of America, Inc. Page 6 the bond.5 We also agree with the district court that insofar as Lexicon asserts that it is due more than labor and material costs caused by delay, Safeco deserves summary judgment under the bond on those claims. We, therefore, affirm that portion of the district court’s ruling. When filing its claim under the bond, J.A. at 415, Lexicon broke its delay and impact claims down into three sections: (1) caster area, (2) fume control/material handling area, and (3) EAF/AOD equipment area. Id. at 418. Lexicon explained that the effect of late plant equipment deliveries had the largest impact: “Maintaining a 45-man crew for the added seven months at sixty-hour workweek [sic] would add over eighty thousand man-hours to the project without any significant completion of our contractual obligations.” Id. at 420. Hours of labor resulting from keeping the job manned by Lexicon at these levels seems hardly labor required to complete the project. Nor does Lexicon’s addition of a 12% profit. Indeed, the contract between Lexicon and Icon setting out the hourly wages for Lexicon employees states that those wages included overhead and profit, among other items. Nor does Lexicon’s method of determining its claim by stating its estimate of what is should have cost in labor to do the job, and what it actually expended appear to be a measure of the hours necessary to complete the contract caused by delay. If Lexicon estimated the cost at ten hours for a job that ended up taking twenty hours on the scale that we see in Lexicon’s claim here, bonding companies would end up paying for the contractors’ too low bids. While that may be what happens when a job is not completed and the sub-contractor is judgment proof, here the contract was completed. Implicit in the court’s ruling is the recognition that a portion of Lexicon’s claims may be claims for labor and material costs necessary to complete the project that were caused by delay. It is unclear whether in this portion of the district court’s opinion it is granting Safeco summary judgment on those claims because Lexicon has failed to make that claim. The only place in its opinion where the district court clearly grants summary judgment on all labor and material claims appears further on in the opinion when the district court rules that the settlement agreement unambiguously settled all contract based claims. We turn now to that ruling.