"Look Who's Bringing Home the Bacon:" How Recent Decisions Interpreting the Davis-Bacon Act Can Negatively Affect the Surety

Abstract

Is the citadel of the surety's right to equitable subrogation under attack? Recent decisions from the Court of Federal Claims, Eleventh Circuit and Department of Labor have taken the view that Davis-Bacon Act claims have priority over the surety's right to equitable subrogation in remaining contract funds, even a performance bond surety. Properly determining the remaining amount of contract funds which can be recovered by the surety can have significant impact on the surety's decision making process with respect to determining the course of action upon default of the principal. Evaluation of the surety's options upon default must be made in light of the remaining money under the contract which potentially can be available to fund completion or provide salvage. Accordingly, this paper will explore the Davis-Bacon Act and the federal regulations implementing the requirements of the Act, as well as the surety's right to equitable subrogation and the parameters of the priority of that right. The paper will then examine the conflict between the surety's right to equitable subrogation and the Davis-Bacon Act in the context of the impact on availability to the surety of remaining contract funds. Finally, some practical pointers for addressing Davis-Bacon Act issues will be offered.