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No Supply Contract? You Can Still 'Recoup' For Defective Materials

Sunday, April 01, 2012 02:16 am


If a supplier delivers unacceptable goods on a construction project, the general contractor's recourse is simply not to pay. However, the federal Miller Act (or a state's little Miller Act) permits the supplier to sue the contractor and its surety even in the absence of contract privity. In that case, the proper contractor defense is "recoupment." An alternate claim for a "setoff" is not allowable under the Miller Act without privity.

Recoupment is intrinsic, setoff is extrinsic

Both recoupment and setoff claims seek to reduce the amount owed. The key difference lies in where you're subtracting from--the debt at issue or another unrelated debt. Recoupment is a claim reduction based on a right the defendant has that arises out of the same transaction, while a setoff is a claim reduction based on an unrelated debt between the parties. United Structures of America, Inc. v. G.R.G. Engineering, S.E., 9 F.3d 996-1000 (1st Cir. 1993).

In G.R.G., then Chief Judge Stephen G. Breyer explained it this way: If Smith sues Jones for $10,000 worth of grain it supplied, and Jones seeks to cut the bill in half because Jones incurred costs to dry out the defectively wet gr [...]

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