to gather from the cases decided under the Miller Act a general rule of law which is dispositive of any particular case. However, it is possible to identify from the various decisions certain factors which the Courts have considered to be important in determining whether or not a particular party is a subcontractor or a material supplier.
One of the most important factors to consider is the nature of the material or service supplied by the alleged subcontractor to the prime contractor. For example, a party who supplies fungible goods which are a part of his general inventory, such as sand and gravel, and the production of which does not require a specialized or customized manufacturing process in order to meet specifications of the prime contract is generally held to be a material supplier rather than a subcontractor regardless of the relationship of the cost of the materials which he supplies to the cost of the entire project. See, e.g. Brown & Root, Inc. v. Gifford-Hill & Co., 319 F.2d 65 (5th Cir. 1963); United States ex rel. Pioneer Steel Co. v. Ellis Construction Co., 398 F. Supp. 719 (E.D.Tenn.1975). On the other hand, if an item is to be custom manufactured by the purported subcontractor according to the specifications found in the prime contract and the purported subcontractor bears a portion of the responsibility for the design and fabrication of the goods including the responsibility to prepare shop drawings in accordance with prime contract specifications, then it is likely that the relationship between the prime contractor and the purported subcontractor is sufficient to justify recovery by the latter's material suppliers under the Miller Act. See, e.g., United States ex rel. Gulfport Piping Co. v. Monaco & Son, Inc., 222 F. Supp. 175 (D.Md.1963), Rev'd on other grounds, 336 F.2d 636 (4th Cir. 1964). Of course, custom manufacturing by itself is not sufficient. To a certain extent, every material supplier is required to provide to the prime contractor materials in accordance with contract specifications. Thus, in Aetna Casualty & Surety Co. v. United States ex rel. Gibson Steel Co., 382 F.2d 615 (5th Cir. 1967), the Court found a contractor-subcontractor relationship lacking between the prime contractor and the purported subcontractor because although the latter performed custom manufacturing, none of the items which it made were complex but rather consisted of simple components such as stairs and ladders. The Court did indicate, however, that the fact that the purported subcontractor was required to prepare the shop drawings and that it had no inventory of the items to be produced weighed on the side of a finding that a contractor-subcontractor relationship existed. See also Miller Equipment Co. v. Colonial Steel & Iron Co., 383 F.2d 669 (4th Cir. 1967), Cert. denied, 390 U.S. 955, 88 S. Ct. 1049, 19 L. Ed. 2d 1148 (1968).
The essential facts relating to whether Vertex was a subcontractor in this case are as follows. First, on the material supplier side of the balance, Vertex's contract with Lane as originally agreed to contemplated the performance of work for which Vertex was to be paid $ 726,500 or about 2% Of the total dollar amount of the contract entered into between Lane and the Corps of Engineers. Vertex was not required to perform any installation of the gates in the intake tower or any other significant on-site work. Rather, Vertex's obligation with respect to the gates ended when they were delivered to the rail site nearest to the dam project. On the subcontractor side, however, Lane gave Vertex the responsibility of performing particular identifiable parts of the contract with the Corps. Vertex was required to prepare or to have one of its subcontractors or material suppliers supply shop drawings to be submitted to the Corps of Engineers and Vertex participated in discussions related to the shop drawings as Lane's equal. The gates were not stock items but rather had to be manufactured according to Corps specifications and Lane conceded that it had no facilities available for the manufacture of such gates. Additionally, the gates were items that, once constructed, could not be used for any purpose other than functioning in the intake tower of this particular claim. Finally, the hydraulic gates in this case are an important part of the entire dam structure. The gates, which regulate the flow of water through the intake tower, permit the dam to regulate with some precision the water level behind the dam and the rate of flow of water into the river downstream. This Court was not impressed with Lane's witnesses' assertion that the dam would perform its essential function, namely the impounding of water, whether the gates were in place or not. It is the Court's view that the functioning of a particular item can be described in a number of ways and that one can by definition minimize the importance of certain features which are in reality essential to the item's function. Thus, for example, it may be said that the purpose of a wind instrument is to make sound and it will perform that function whether or not it contains devices such as keys and holes to produce different notes. Nevertheless, without some means of regulating the passage of air through a wind instrument it does not perform its essential function. The same can be said of the Cowanesque Dam. Without the gates manufactured by Vertex, the dam would be at best a crude instrument for the impounding of water and would not be able to regulate either the water level behind the dam or the flow of water through the dam in as precise a manner as it can if the gates be in place. It is the latter features, namely the importance of the gates to the overall project and the fact that Vertex was required to custom-manufacture the gates to Corps specifications and in general to be responsible for assuring that the gates met such specifications which convince this Court that Vertex's relationship to Lane was that of a subcontractor to a contractor. The Court agrees with Parker that the facts of this case are extremely similar to those presented to the United States Court of Appeals for the Second Circuit in United States ex rel. Wellman Engineering Co. v. MSI Corp., 350 F.2d 285 (2d Cir. 1965). In that case, the prime contractor engaged Seneca, the alleged subcontractor, to manufacture a hydraulic system for opening and closing the doors on a missile launcher. Seneca had no responsibility to perform any on-site construction or to install the system. The Plaintiff in that case supplied certain parts to Seneca for the system for which Seneca did not pay. The Court concluded, based upon the degree of responsibility assumed by Seneca to insure that the parts which it manufactured complied with government specifications and the type of work involved including the construction of items not generally available, that Seneca was a subcontractor. This Court concludes that Vertex as a subcontractor within the meaning of the Miller Act and that any party standing in a direct contractual relationship to Vertex is entitled to maintain an action on the bond posted by Lane.
The finding that Vertex was a subcontractor within the meaning of the Miller Act does not end the Court's inquiry into whether Parker is entitled to recover in this case. Lane also asserted and litigated at trial the issue of whether Vertex contracted directly with Parker for the manufacture of the cylinder or whether a third party, the Orton Company, broke the contractual chain between Vertex and Parker so as to preclude Parker from recovering under the Miller Act. Again, the determination of whether Parker and Vertex had a direct contractual relationship is primarily a factual one. The evidence produced in this case indicates that Vertex originally solicited an offer relating to the manufacture of the cylinders from the Orton Company. However, it was clear that from the outset of the relationship between Orton and Vertex Orton was acting not in its capacity as a distributor for certain products manufactured by other companies, as it did from time to time, but in its capacity as a sales agent or manufacturer's representative for Parker. Orton specifically advised Vertex that all communications were to be addressed to the Parker-Hannifin Corporation in care of the Orton Company. Parker communicated directly with Vertex on a number of occasions, including sending invoices directly to Vertex and shipping the completed cylinders to Vertex's plant. Orton never billed Vertex. Further, Orton was paid a commission on the sale by Parker which Orton ultimately refunded when Parker's bill was not paid by Vertex. The facts do not present a situation where Orton, acting as an independent distributor, purchased the cylinders from Parker and then sold them to Vertex. Cf. United States ex rel. Hasco Electrical Corp. v. Reliance Ins. Co., 390 F. Supp. 158 (E.D.N.Y.1975). Rather, when viewing the substance of the transaction involving Vertex, Orton, and Parker, see Glens Falls Ins. Co. v. Newton Lumber & Mfg. Co., 388 F.2d 66 (10th Cir. 1967), Cert. denied, 390 U.S. 905, 88 S. Ct. 821, 19 L. Ed. 2d 873 (1968), the Court is convinced that there was a direct contractual relationship between Parker and Vertex relating to the manufacture of the cylinders.
The Court's conclusion that the relationship between Vertex and Lane is that of subcontractor and contractor with respect to the manufacture of the gates to be incorporated into the Cowanesque Lake Dam Project and that Parker had a direct contractual relationship with Vertex entitles Parker to recover on the bond the money owing to it by Vertex for the manufacture of the cylinders supplied by Parker to Vertex to be incorporated into the gate assemblies. Because Parker has prevailed on its Miller Act claim, it is unnecessary for the Court to consider whether in the alternative Parker would be entitled to recover directly from Lane under the theory of unjust enrichment. Based upon the foregoing, the Court reaches the following
IV. Conclusions of Law.
1. Vertex Systems, Inc. was a subcontractor of Lane Construction Corporation, the prime contractor on the Cowanesque Lake Dam Project, with respect to Vertex's agreement to furnish to Lane hydraulic gate assemblies to be incorporated into the intake tower of the dam.
2. Parker-Hannifin Corporation was a material supplier which had a direct contractual relationship with Vertex Systems, Inc. relating to the furnishing of hydraulic cylinders to be incorporated into the gates which Vertex agreed to manufacture for Lane.
3. Parker is one of those material suppliers which are protected by the payment bond posted by Lane as required by the Miller Act, 42 U.S.C. § 270a et seq.
4. Parker is entitled to recover against the Defendants the sum of $ 88,686.22 plus interest from February 28, 1978 at the rate provided by law.
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