Bond Protection Under the Miller Act
What is The Miller Act
The Federal Miller Act protects certain subcontractors, laborers and suppliers that provide labor or materials for the construction, alteration or repair of federal projects against the risk of nonpayment. Claimants that improve a federally owned project cannot record a claim of lien against the improvement. For example, despite its potential value on the open market, the Washington Monument cannot be foreclosed on by a subcontractor that performed certain construction improvements at the landmark.
How Do You Comply
To reduce the inherent risk to the owner, prime contractor and potential claimants on a federal project, the Miller Act requires a payment bond to be issued by the prime contractor and its surety on most federal government construction projects exceeding $100,000. As such, any subcontractor, laborer or supplier performing federal work should have a basic understanding of how to comply with and use the Miller Act to increase the likelihood of payment during a dispute. If the claimant’s customer is underfunded or bankrupt, a bond claim may be the only viable means of collection. In these instances, making a proper Miller Act payment bond claim is critical to securing payment. Conversely, the prime contractor and its surety must understand the Miller Act’s payment bond provisions to separate valid and bogus bond claims.
Who is a Proper Claimant
Keep in mind who may be a proper claimant under the Miller Act. For example, a subcontractor, material supplier or laborer performing under a contract with the prime contractor (i.e., a first-tier claimant) can make a Miller Act bond claim. A sub-subcontractor, a laborer or material supplier working under a contract with one of the prime contractor’s subcontractors (i.e., second-tier claimant) also can make a Miller Act bond claim. However, no claimant below the second tier of contractual privity can make a Miller Act bond claim. For example, a material supplier to a material supplier has no rights under the Miller Act. As a result, an entity below the second tier should price its work with the understanding that it will not have an available remedy under the Miller Act.
What Notices Are Required
Failing to correctly and timely serve the proper notice under the Miller Act may mean “game over” to a bond claimant’s action, even if its work was performed perfectly.
For example, prior to filing a lawsuit to enforce its payment bond claim, a second tier claimant must notify the prime contractor by stating with “substantial accuracy” the amount claimed and to whom the material or labor was furnished. The notice must be provided to the prime contractor within 90 days of the second tier claimant’s last date of work on the project. Because various federal court opinions differ on whether the notice must be received or merely served by the 90th day, claimants should aim to complete the notification process well before the deadline.
No notice is required by a party that contracts directly with the prime contractor because the prime contractor is presumed to know if its subcontractors, laborers or suppliers are unpaid. Though the Miller Act contains no such requirement, some states, such as Florida, require a claimant to serve a “notice to owner” or “notice to contractor” within a certain time after beginning work on the project prior to perfecting a bond or lien claim.
Filing Suit
Both first-tier and second-tier claimants are required to file a lawsuit to enforce the payment bond claim within one year of the claimant’s last work on the project. The timing of the notice provision and the one-year statute of limitations prevent the prime contractor and surety from being served with stale claims.
Waivers of various claims, including but not limited to Miller Act payment bond claims, are not uncommon in contract documents provided to a claimant before work begins. However, the waiver of a claimant’s right to bring a lawsuit against the Miller Act payment bond is valid only after the claimant performs the work covered by the waiver. It also must be in writing and executed by the claimant that wants its right to be waived.
The Miller Act is a valuable resource if used correctly and timely.