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Suing the Owner for Non-Payment When the Owner Is the Government

In late 2021, a case was filed in the U.S. District Court for the Southern District of Texas where a lower-tier subcontractor sued the project owner for non-payment, bypassing the subcontractor with whom it had contracted. The case was Drill Tech Drilling & Shoring Inc. v. Acciona Energy USA Global LLC et al., case number 1:21-cv-00171, in the U.S. District Court for the Southern District of Texas, Brownsville Division.

While the complaint does not appear to be related to procurement contracting, it nevertheless raised the question for the author of this article as to whether a similar situation could occur in a government contract setting. Specifically, can a subcontractor sue the government when it is not being paid by its prime?

The short answer is very likely no, as there is no privity of contract between the sub and the government. And, the subcontractor cannot place a lien on a government project. Because the sub does not have traditional commercial remedies, federal legislation was enacted to provide a mechanism for subcontractor redress. It resulted in the Miller Act, which serves as a protective measure for non-payment of subcontractors by their primes on construction projects.

When a government contract is covered by the Miller Act, a subcontractor who has not been paid can sue the prime contractor for various common law claims, but it can also sue the prime’s surety under the Miller Act after the claim has been perfected. So, while the subcontractor likely cannot reach the government for redress when its prime fails to pay, through the Miller Act, the government has provided an additional defendant from which a subcontractor can seek recovery. The surety is, in effect, a stand-in for the government owner.

All plaintiffs want as many sources of recovery as possible and particularly those with known sufficient assets to pay out on a judgment. If the prime is not paying, it can be an indicator of financial stress which leads to a tactical inference that any recovery may be difficult to achieve, if possible at all. Thus, getting to the project owner, either by circumventing the prime as in Drill Tech or suing the prime along with the owner, assists in mitigating any difficulties that may arise as a result of the prime’s likely inability to settle or pay against a judgment.

Thus, while it may be all but impossible for subcontractors on government contracts to sue the government owner for non-payment by the prime, if the government contract is one covered by the Miller Act, subs will have another commercial defendant, acting as an owner substitute, to sue exclusively or in conjunction with the prime contractor.

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