MOORE BROS. CO. V. BROWN & ROOT, INC.
207 F.3d 717 (4th Cir. 2000)
NATURE OF THE CASE: Highlands Insurance Co. (D), surety, appealed a summary judgment o in
favor of subcontractors, Moore (P) and Brown (D), contractor, appealed an award of damages
against it for additional 'change in scope' work and an early completion bonus, and Ps
cross-appealed the court's denial of prejudgment interest on part of the award.
FACTS: The Toll Road Investors Partnership ('TRIP') awarded the general construction
contract to Brown (D). D was also an equity partner in TRIP. D entered into subcontracts
with Moore Brothers Co., Inc.(P) and The Lane Construction Corp., (P), to build parts of the
road. Highlands Insurance Co. (D) issued a contract payment bond as surety. The subcontracts
between Brown (D) and Ps contained a general 'pay when paid' clause. The prime construction
contract contains provisions for additional payment if TRIP orders substantial design
changes that constitute a 'change in scope' of the project. TRIP and Brown (D) reached a
side agreement concerning additional 'change in scope' illustrations and then concealed that
agreement from the lenders by placing it in a side letter, while leaving it out of the prime
contract. Brown (D) did not tell the subcontractors that the design change illustrations and
the potential need for additional 'change in scope' work were hidden from them, and
therefore not adequately funded by, the lenders. A thicker pavement sub-base was needed and
Brown (D) ordered the subcontractors to proceed with the additional work. Under the terms of
the 'pay when paid' condition precedent in the subcontract, Brown (D) knew that if payment
for the additional work were not forthcoming from TRIP, it was the subcontractors who would
assume the bulk of the loss. After the additional work was completed, Brown (D) and Ps
sought arbitration of their claim for additional payment from TRIP. The arbitrator concluded
that the additional work did constitute a 'change in scope' and therefore ordered TRIP to
make payments beyond the base contract price. Financing was never arranged to cover payment
for additional 'change in scope' work. TRIP, therefore, did not have the funds to pay. Brown
(D) claims that it is not obligated to pay Ps for the additional work because of the 'pay
when paid' clause contained in the subcontracts. The final version of the bonus provision in
the primary contract was left vague. For Ps, a change order was added that read: Within 30
days of receipt by General Contractor, Subcontractor will receive 31.5% (or equivalent of $
13,500.00 per day of earned bonus whichever is greater) of all Incentive Bonus monies paid
to General Contractor by Owner for early completion of the General Contractor's Work Scope.
Ps rejected Brown's (D) second contractor bonus proposal, which was designed to reduce the
risk of substantial delay or nonpayment by TRIP, because information and documents material
to these risks had been either concealed or withheld from Ps by Brown (D). Brown (D) has not
been paid the early completion bonus, nor has it in turn paid a portion of that bonus to Ps.
Ps sued Brown (D) and the surety Highlands (D). The court granted Ps' motion for summary
judgment against Highlands (D) as it could not assert the 'pay when paid' defense available
to Brown (D). Highlands (D) did not expressly incorporate the 'pay when paid' provision into
its bond contract, and because the very purpose of a surety bond is to provide payment when
the principal is unable to pay, the court held that Highlands (D) was liable to Ps and must
pay for the additional work performed. Ps got judgments against Brown (D) for the additional
work and early completion bonuses. Both Ds appealed. Ps cross appealed the denial of
prejudgment interest on the early completion bonus and on Moore's additional 'change in
scope' work.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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