A recent case makes clear the importance of focusing on the fundamentals, such as knowing the rules on who the government is required to pay on a government contract.  In The Hanover Insurance v. United States, the U.S. Court of Federal Claims recently found that a surety’s letter to the Government adequately notified it of the contractor’s default of bond agreement, triggering the surety’s equitable subrogation right to payments issued by the Government.

In that case, the surety, Hanover Insurance Company (Hanover), overcame a summary judgment motion filed by the Government, concerning a Veterans Administration (VA) contract awarded to B&J Multi-Service Corporation (“B&J”) for facilities maintenance at a VA facility in West Haven, Connecticut.  The Government paid termination for convenience (“T/C”) costs to B&J to which Hanover as surety claimed it was entitled.

The Government asserted that Hanover, as surety to B&J, had not given proper notice of B&J’s default, thereby precluding any Government obligation to pay Hanover directly.  The Government argued proper notice was not given because Hanover did not invoke the precise words “the principal is in default” prior to the VA’s payment to B&J.  As evident from the court’s opinion, the Government was aware that Hanover was making payments to B&J’s subcontractors.  Hanover put the Government on notice that the funds for termination for convenience should not be paid directly to B&J, because Hanover was asserting a subrogation right to the T/C funds.  However, the Government ignored the surety and paid the termination for convenience funds directly to B&J. Continue Reading Termination for Convenience: Government Pays the Wrong Party, No Magic Words Needed to Trigger Surety’s Right of Equitable Subrogation