Hanover Insurance Co. v. Dunbar Mechanical Contractors, LLC, No. 19-2226 (8th Cir. 2020)
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Dunbar, a Service Disabled Veteran Owned Small Business (SDVOSB), was awarded an Army Corps of Engineers ditch and tributary project in Arkansas. Dunbar then hired a subcontractor, Harding Enterprises, to work on the project. After Harding Enterprises defaulted, Dunbar made a demand on the bond guaranteed by Hanover, which Hanover denied. Hanover then filed suit seeking a declaration that it had no obligations under the bond and seeking to have the bond rescinded based on illegality of the subcontract.
The Eighth Circuit reversed the district court's grant of summary judgment in favor of Hanover, holding that the district court erroneously concluded that the subcontract was undisputedly in violation of 13 C.F.R. 125.6(b)(2) because the percentage that Dunbar spent on contract performance relative to the prime contract price could not be conclusively ascertained until conclusion of performance of the prime contract. The court also held that the potential that Hanover may have liability under the False Claims Act if it were to perform under the bond does not justify discharging Hanover from its obligations and rescinding the contract.
Court Description: [Shepherd, Author, with Colloton and Erickson, Circuit Judges] Civil case - Contracts. In a declaratory judgment action alleging a performance bond contract was void on the ground the underlying subcontract was invalid because it subcontracted more than the allowable percentage for this type of set-aside government contract, the district court erred in determining the percentage Dunbar spent on contract performance relative to the prime contract exceeded the 85% limit because the percentage could not be conclusively ascertained until the completion of the prime contract; the district court erred in determining that Hanover's potential liability under the False Claims Act if it were to perform the bond warranted discharging it from its obligations and rescinding the contract.
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