United States v. McMullen

Background

The United States contracted with the New York Dredging Company, which was backed by private surety companies, to perform dredging under detailed plans and a bond. The work was to begin within thirty days of October 25, 1897, and finish in sixteen months. The contractor started preparations in November 1897, began dredging in March, and asked for more time in January 1899. The Secretary of the Navy extended the deadline to December 30, 1899. The contractor largely stopped work by April 1899; the Navy later declared the contract void on May 25, 1901, hired a new contractor, and the trial court awarded the Government the difference in cost to complete the work.

Reasoning

The core question was whether the Government’s allowance of extra time discharged the surety companies from liability. The Court concluded the sureties were not released. It relied on contract clauses that plainly contemplated changes, extensions, and government control over plans and deposit points, plus a provision for daily deductions for delay. Those terms showed extensions and other contingencies were foreseeable and covered by the bond. The Court also explained that the Government’s announcement of annulment marked a default and did not eliminate the Government’s right to recover reasonable additional completion costs; those costs are presumed reasonable unless shown otherwise.

Real world impact

The decision means companies that guarantee a contractor’s work remain liable when the Government lawfully permits plan changes or time extensions under the contract. It also confirms the Government may employ a replacement contractor and recover the reasonable extra cost to finish the job. The judgment of the lower Circuit Court was affirmed, reversing the Court of Appeals decision.