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Designer To Recover $4.7 Million From Bond Sureties

Friday, July 07, 2017 06:28 am

 

Bonds---Design

Aztec Eng'g Group, Inc. v. Liberty Mutual Ins. Co., 2017 U.S. Dist. Lexis 58584 (S.D. Ind. April 18, 2017)

A court can't extend a payment bond's coverage beyond its scope. But, here, sureties improperly defined a bond's scope to preclude recovery by a project designer.

Aztec Engineering Group, Inc. and Tecnica y Proyectos S.A. (collectively, Aztec) performed design work on a public-private project to upgrade a section of state highway near Bloomington and Martinsville, Indiana. Under Aztec's subcontract with general contractor Isolux-Corsan, LLC (Isolux), Isolux was permitted to withhold payment on disputed items related to the Aztec's invoices. However, in several cases, Isolux failed to pay undisputed items.

Aztec issued notices of default pursuant to the subcontract for the unpaid, undisputed amounts, which totaled $4,678,452. Aztec eventually stopped work on the project and subsequently sought payment from the sureties that provided the project's payment bond. The sureties refused to pay, contending that the bond did not cover design services. This motion for summary judgment on Aztec's claim against the sureties ensued.

There were three key agreements associated with the project: (1) a Public-Private Agreement (PPA) between the owner and developer; (2) a Design-Build Contract (DBC) between the developer and Isolux to "design, construct, finance, operate and maintain the Project"; and (3) the Engineering Services Agreement (ESA) between Isolux and Aztec, which designated Aztec as "Design Consultant."

Aztec argued that the payment bond applied to its design work because the bond expressly incorporated the DBC, which covered design work. The bond also characterized the DBC as a contract "related to the performance of design and construction work." (Emphasis added.) Furthermore, the bond referenced the ESA in its application to "all just claims for labor performed ... for the work under the [DBC], whether said labor be performed ... under the original [DBC], any subcontract, or any and all duly authorized modifications thereto." (Emphasis added.)

Design work is bonded labor

The sureties countered that des[...]

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