United States v. United States Fidelity and Guaranty CompanyUnited States v. United States Fidelity and Guaranty Company
33 Cont.Cas.Fed. (CCH) 74,265
UNITED STATES for the Use of SUNBELT PIPE CORPORATION, Appellant,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY; American
Manufacturers Mutual Insurance Company, Appellees,
and
Lumbermens Mutual Casualty Company, Defendant.
No. 85-1209.
United States Court of Appeals,
Fourth Circuit.
Argued Nov. 5, 1985.
Decided Feb. 26, 1986.
Robert D. Daniel (Saccomanno, Clegg, Martin & Kipple, Houston, Tex., Winthrop A. Short, Jr., Kaufman & Canoles, Norfolk, Va., on brief), for appellant.
Guilford D. Ware (Joan E. Schwarzkopf, Crenshaw, Ware & Johnson, Norfolk, Va., on brief), for appellees.
Before SPROUSE and SNEEDEN, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.
HAYNSWORTH, Senior Circuit Judge:
This is a suit against the sureties on a bond under the Miller Act, 40 U.S.C.A. Secs. 270a-270d. Sunbelt Pipe Corp. sold dredging pipe to Merritt Dredging Co. for use in performing dredging work in Norfolk Harbor under a contract with the United States Army Corps of Engineers. The district court found that the pipe was рurchased as part of Merritt's capital equipment and was not "material" within the meaning of the Act or of the bond.
We affirm.
I.
In late 1983, the Corps of Engineers solicited bids оn a contract for maintenance dredging in the harbor at Norfolk, Virginia. The contract was "set aside" for an award to a "small business" under the auspices оf the Small Business Administration. The contract was awarded in February 1984 to Merritt, a qualified small business.
Pipe is indispensable to the performance of a dredging contrаct. It is the means by which slurry is carried from the area being dredged to the spoil area ashore. The pipe is manufactured and shipped in relatively short lengths. These short lengths are welded together near the job site to form a continuous pipe for the transportation of the slurry.
Because of concеrn about the rules of the Small Business Administration, the Corps of Engineers insisted that Merritt not lease pipe from a non-qualifying business, and that Merritt, itself, acquire the necessаry pipe. Merritt made the necessary arrangement to purchase the pipe from Sunbelt and had it shipped to the Higgerson-Buchanan Yard in Chesapeake, Virginia.
In preparation for the dredging work, Merritt had some of the pipe welded into 1,000 feet lengths. Before completion of the fabrication оf the pipe and, of course, before commencement of any dredging, Merritt filed a petition in bankruptcy. Merritt owed Sunbelt some $226,000, the purchase priсe of approximately 12,000 feet of pipe. Sunbelt apparently believed that its claim would be protected by the Miller Act bond, for it did nothing to securе and perfect a state lien on the pipe.
The pipe remains at the Higgerson-Buchanan Yard.
II.
For public works of this sort, the Miller Act requires a performance bond for the protection of the United States and a payment bond for the protection of suppliers of labor and material to the project. 40 U.S.C.A. Sec. 270a. A Miller Act payment bond does not protect the vendor of capital equipment, such as the dredge.
In a construction contract, the concept of "material" most obviously encompasses things which will be incorporated in the project itself, such as steel beams, brick, window frames, flooring and roofing. It has a broader reach, however, for it includes expendable and other things reasonably expected to be consumed, or substantially consumed, in the performance of the work. A thing which may reasonably be expected to be removed by the contractor and used in subsequent jobs is a part of the contractor's capital equipment, but something which is reasonably expected to have no utility or economic value to the contractor after the completion of the work may be classified as material.
The Miller Act was designed to replace reliance by materialmen upon state created liens. J.W. Batesоn Co. v. United States ex rel. Board of Trustees,
This liberal construction is illustrated by the significance attached to the reasonable good faith belief and expectation of the supplier. If the supрlier reasonably believes, in good faith, that the material furnished is to be used in the bonded project, he has the protection of the bond. United States ex rel. Westinghouse Electric Supply Co. v. Endebrock-White Co.,
Similarly, in distinguishing between material and capital equipment, we approach the problem from the perspective of the reasonable expectation of the supplier. The extent of expected consumption of the things on the project is to be regarded from the supplier's point of view. Byrne,
III.
The district court resolved that cruciаl question against Sunbelt. It was a factual finding for which there is abundant evidentiary support, and it was not clearly erroneous.
There was expert testimony that dredging pipe is not usually consumed in the performance of a dredging project, and is commonly regarded as part of the dredger's capital equipment. Whilе the wear on the pipe would vary with the type of material being dredged, there was testimony that dredging the quantity and type of material to be removed from Nоrfolk Harbor would have occasioned only negligible wear. Dredgers commonly take their pipes with them for reuse. One who did not could not remain comрetitive.
Sunbelt's only attempt to show a reasonable expectation of consumption of the pipe in the performance of the project is founded upon a claim of substantial depreciation of the market value of the pipe upon fabrication. After fabrication, it is worth less to a potential purchaser intending to use it at a distance, for he must undergo the substantial expense of cutting it into manageable lengths for transportation. Sunbеlt contends that this results in a depreciation of the market value of the pipe of approximately two-thirds.
That may be, but the pipe, after fabrication, still has substantial economic value for one wishing to use it on another project even though it must be cut into short lengths for transportation. It would have even more economic value to one having a contract to perform dredging nearby, if he could float the pipe to the new job site without cutting it up.
Sunbelt's reliance is upon United States ex rel. U.S. Rubber Co. v. Ambursen Dam Co.,
There is little comfort for Sunbelt in that case. Because transportation to a distant job may require the owner to go to the substantial expense of cutting it into short lengths, the market value of the pipe may be substantially less than that of new, unfabricated pipe. Nevertheless, such pipe is commonly reused in the industry. It is cheaper to cut it up and transport it than to purchase and transport new pipe. The saving is substantial when expert testimony indicated that a dredging contrаctor who did not reuse his pipe could not compete. Welding the pipe together may reduce its market value, but it does not alter the fact that it is reuseable or the fact that, in practice, it is reused.
Fabrication of the pipe into longer lengths cannot be equated with consumption. Since Sunbelt hаd no reasonable expectation that the pipe would be consumed in the performance of the contract, it is not a supplier of material within the meaning of the statute or of the bond.
AFFIRMED.