Subcontractor Not Third Party Beneficiary to Prime Contract

04/22/2012

In Environmental Staffing Corp. v. B & R Construction Mgmt., 283 Va. ___ 111067, ___ S.E.2d ___ (2012), just recently decided by the Virginia Supreme Court on April 20, 2012, the court held that a subcontractor was not a third party beneficiary to its contractor’s prime contract with the owner.

The court noted that the prime contract expressly noted that it was intended for the benefit of project developer, and reasoned that this express inclusion therefore necessarily permitted an intended third party beneficiary conclusion on the part of the subcontractor. The court also rejected the subcontractor’s argument that the project’s bond requirements supported the third party beneficiary claim, reasoning that while the subcontractor was indeed a beneficiary under the bond itself, that did not extend to being a beneficiary under the prime contract itself.

Although the surety was bankrupt, the court noted that the subcontractor still could have pursued its bond remedy against the surety’s principal, but chose to not do so.

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