United States ex rel. T.M.S. Mechanical Contractors, Inc. v. Millers Mutual Fire Insurance
942 F.2d 946 | Court of Appeals for the Fifth Circuit | 1991
What This Case Means for Subcontractors
T.M.S. Mechanical Contractors sued the payment bond surety for delays and termination costs on a VA hospital project in Texas. The court ruled that sureties must pay for actual out-of-pocket costs (labor and materials) caused by delays, but not for lost profits or termination expenses. This limits what subcontractors can recover under Miller Act bonds when projects are delayed or terminated.
Key Takeaways
- •You can recover actual costs for labor and materials that increased due to project delays, but document these carefully with invoices and time records.
- •Termination costs and lost profits on delay work are NOT recoverable from the surety, so negotiate these protections in your subcontract instead.
- •Make sure your subcontract clearly defines what costs flow down from the general contractor and what the surety will cover—don't rely on the Miller Act bond alone.
Subcontractor can recover increased out-of-pocket costs for labor and materials caused by delay.
Frequently Asked Question
Can I recover delay costs and lost profits from the payment bond surety?
You can recover actual out-of-pocket costs for labor and materials caused by delays, but not lost profits or termination expenses. The surety's liability is limited to direct costs you incurred, not business losses. Document all delay-related expenses with invoices and time records to support your claim.
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