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Miller Act: Protecting Subcontractors and Suppliers

Miller Act: Protecting Subcontractors and Suppliers

September 9, 2019

The Miller Act is one of the most important laws you will encounter as a construction business owner in the United States. If you’re a contractor, a subcontractor, or a material supplier working on a federal government project, you have to familiarize yourself with how the Miller Act works.

What is the Miller Act?

The Miller Act is a law passed in 1935 to protect the rights of subcontractors and material suppliers who are working on government-funded projects. This law requires every general contractor to furnish two surety bonds – a performance bond and a payment bond – to the government before they are awarded a contract that is worth $100,000 or more.

Prior to the Miller Act, there were no laws protecting subcontractors and material suppliers from non-payment. Lower-tier construction participants in the 1800s had no means of recovering payment from delinquent government contractors.

Sovereign immunity exempts government projects from being covered by a mechanics lien, which means that a public property may not be sold or placed in an auction as a means to settle outstanding payments. Subcontractors and material suppliers were therefore often left empty-handed whenever a general contractor would default on a public project.

With the Miller Act in place, first- and second-tier subcontractors are allowed to file a bond claim against the general contractor to secure payment. Not only does the Miller Act provides payment assurance to lower-tier parties, but it also protects the government from construction delays caused by irresponsible contractors.

When does the Miller Act apply?

The Miller Act applies to projects that involve the construction, alteration, or improvement of any building or public property owned by the federal government. All federal projects such as constructing a new road or expanding a school facility can be bonded and are therefore covered by the Miller Act.

However, note that certain federal jobs may not be within the Miller Act’s scope. Transportation and military projects, even if done for a government entity, may not be covered by the Miller Act if an authorized government officer officially issues their exemption from the law.

The two bonds in the Miller Act: What are they and how do they work?

The Miller Act mandates general contractors to furnish two types of bonds: the performance bond and the payment bond.

Miller Act bonds

Performance bond

The performance bond insures the government in case a general contractor does a poor job or abandons a project before its completion. By requiring general contractors to furnish a performance bond, the government is able to protect itself from delinquent contractors that might cause project delays or force the government to incur additional expenses.

Payment bond

The payment bond, on the other hand, protects the subcontractors and the material suppliers and their right to get paid what they have rightfully earned. If the general contractor defaults on a project or fails to pay their subcontractors and suppliers, the payment bond is available so the wronged parties can make a claim.

Who can make a claim against a Miller Act bond?

Only the following parties are allowed to make a claim against a Miller Act bond:

  • Subcontractors who have a direct contract with the general contractor
  • Material suppliers who have a direct contract with the general contractor
  • Subcontractors who have a contract with a first-tier subcontractor
  • Material suppliers who have a contract with a first-tier subcontractor

Parties that can claim against a Miller Act bond

Generally speaking, only first-tier and second-tier subcontractors and materialmen have a claim to the payment bond based on the Miller Act. This means that sub-sub-subcontractors are not protected by the law, and neither are suppliers who are furnishing products to other material suppliers.

Also note that general contractors are not protected by the Miller Act, so they cannot make a claim against their own payment bond. Since they have a contract with a government entity, their best recourse in case of a payment dispute is to file a civil action against the government party that hired them.

Miller Act Procedural Requirements

The Miller Act places various requirements for different construction participants, depending on their role and stake on the project.

Requirements for General Contractors

As discussed, general contractors are expected by the Miller Act to furnish a performance bond and a payment bond for projects that exceed $100,000 in cost. The Miller Act also has specific rules surrounding the nature of these bonds:

Bond amount

The amount of the payment bond must be equal to the contract amount. An exemption can be made if the government contracting officer explains in writing why a different amount is more reasonable and is therefore necessary.

The performance bond amount is determined by the government contracting officer. It must not be less than the payment bond amount.

Additional protection

For projects that are worth between $25,000 and $100,000, the Miller Act may require a general contractor to provide additional protection or bonds based on the Federal Acquisition Regulation.

Also keep in mind that general contractors are legally barred from requiring subcontractors to waive their payment bond rights before working on a project.

Requirements for Subcontractors and Material Suppliers

The Miller Act also has jurisdictional requirements for subcontractors and material suppliers, depending on their tier.

Bond claim enforcement

If you’re a subcontractor or a materialman who has a direct contractual relationship with the general contractor, you are required to enforce your bond claim by filing a lawsuit after 90 days but no later than one year after the last day of furnishing labor or materials to the project.

Written notice

On the other hand, if you’re a subcontractor or a material supplier whose contract is with a first-tier subcontractor, you are required to serve a written notice to the general contractor within 90 days of your last day of performing labor or supplying materials to a project.

The purpose of the written notice is to inform the general contractor of two things: the name of the party that owes you the payment, and the exact amount that said party owes you. These pieces of information must be presented in the written notice with “substantial accuracy” according to the Miller Act Section 3133.

How should the written notice be served?

The Miller Act states that the written notice must be served “by any means that provides written, third-party verification of delivery.” The most convenient way to do this will be to serve the notice via certified mail with return receipt requested.

Also note that while the law requires you to serve the written notice only on the general contractor, you may also send copies of it to the subcontractor who hired you and to the surety bond company. While not a legal requirement, serving them the written notice of nonpayment could prompt payment without your having to file a bond claim.

What do claimants need to prove in a Miller Act claim?

When making a claim under the Miller Act, there are a number of things that you must establish. They are the following:

1. You must prove that you are in a direct contractual relationship with either the general contractor or a first-tier subcontractor.

Establishing your relationship with a relevant party can be done by presenting the written contract that you signed with the party that hired you. Another way to prove this, in the absence of a written contract, is through a credit application and a personal guaranty that you sign with the contractor.

When working on a federal project as a subcontractor or a material supplier, you must always remember to secure written documentary evidence that shows your contractual obligation to the party that hired you.

2. You must prove that you have complied with the written notice requirement, if applicable

Proving your compliance with the notice requirement comes in two ways: you prove that the general contractor has received your notice, and you establish your last day of work on the project. Even if you have delivered the written notice, a general contractor may question your compliance in court based on your last day of work.

A return receipt from your certified mail should be enough to prove that you have served the notice. Keep in mind that the date of delivery is the date that the notice was received by the general contractor and not the date the notice was sent out.

To establish your last day of work, you can present your dated invoices as well as shipping and delivery tickets.

3. You must prove that your “good faith belief” that the labor or materials you furnished to the project were intended for use in the project.

The validity of your bond claim may be countered on the basis that the labor or materials you furnished were not specifically intended for the project. A general contractor may, for example, refuse to pay up and oppose your bond claim because the materials you provided were not delivered to the project site.

In scenarios like this, you must prove that you provided your services in full belief that they were for the benefit of the project at hand. You could do so by presenting proof of a contractual relationship with the party that hired you and copies of the invoices and delivery tickets signed by the contractor.

Filing a Miller Act claim

1. Ensure that you have the right to claim a payment bond
2. Send a bond claim notice to the general contractor and the surety company
3. Fill out the payment bond claim form
4. Provide the required documentary evidence
5. Enforce the bond claim, if necessary

1. Ensure that you have the right to claim a payment bond

The first thing you should do is verify that you are qualified to make a payment bond claim. Keep in mind that only first- and second-tier subcontractors and material suppliers are protected by the Miller Act.

2. Send a bond claim notice to the surety company

If you are qualified to make a payment bond claim under the Miller Act, the next step is to send a bond claim notice to the general contractor and the surety company.

This written notice is the same as your actual bond claim. There are two important pieces of information that must be included in this notice: the amount that is owed to you and the name of the party that owes you the money. These two pieces of information must be of “substantial accuracy” for your payment bond to be considered valid.

When do you send a bond claim notice?

The written notice must be sent after 90 days but no more than 1 year following your last day of providing service to the project. Note that you may NOT send the notice in less than 90 days after your last day of work, but you must also not wait too long until the 1-year mark has elapsed. Your right to may a bond claim expires after 1 year.

Should you send the bond claim notice to anyone else other than the surety company?

Second-tier subcontractors and material suppliers are required to serve the notice to the general contractor as well. If you are a second-tier subcontractor or materialman, this is a mandatory step.

First-tier subcontractors and material suppliers, on the other hand, do not have to furnish a copy of the claim to the general contractor. However, it is still recommended that they do so because this notice may be enough to prompt payment.

How should you send the bond claim notice?

The Miller Act states that the notice may be served “by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor’s residence.”

Serving the written notice via certified mail with return receipt requested should be sufficient for you to meet the requirements. Make sure to keep all the receipts and certifications that come with mailing.

Also note that the courts will look at the date when the surety company receives your notice – not the date when you mailed it – when determining the timeliness of your bond claim.

3.  Fill out your payment bond claim form

Once the surety company receives your written notice, they will hand you a form to fill. Every surety company will have different required information; just fill out the form as accurately as possible.

4. Provide the required documentary proofs

Since you are making a “claim” then you will be required to prove your claim. Proving your claim obligates you to present documents and receipts, so make sure you have all the information and paperwork to back you up.

The types of documents may vary depending on the nature of your claim. Generally speaking, you should have copies of your invoices, delivery tickets, pay stubs, etc.

5. Enforce the bond claim, if necessary

Once the surety company has received your notice of claim and your documents, they could either pay you or not. If you get paid, then all is well.

Sometimes, however, the surety company may take some time to review your claim, if not completely reject it. Opposition from the general contractor may also arise. In any case, if you think that you are not going to receive your payment, then you should enforce your claim.

Enforcing your claim means filing a lawsuit against the bond company. This suit must be filed in the local district court where the project is located, and your claim must be enforced within 1 year after your last day of service to the project.

Failing to enforce the bond claim within the 1-year time frame will result in the expiration of your right to file a claim. You will end up not receiving the money that you worked hard for, and your best recourse for payment discovery is no longer enforceable.

Important Dates to Remember

The Miller Act does not impose specific deadlines for filing the bond claim. You will have to consult the “Little Miller Acts” – the bond claim laws that are specific to the state in which the project is located – to know if there are specific deadlines that you have to meet for your claim to be valid.

Consequently, there is also no specific turnaround time that is required for surety companies to make a decision. Reviews can last for 30 days or longer, and unfortunately, there is no definite decision period that the Miller Act prescribes.

Enforcing a Miller Act claim

Your bond claim may be rejected by the surety company, or its approval may be delayed if there is opposition from the general contractor’s side. In any case, if you think that the bond claim will not prompt payment, you must enforce it.

How to enforce a claim

Enforcing the bond claim involves filing a civil action against the bond, specifically the surety company. You may also include the name of the general contractor in your lawsuit, though it may not be necessary.

Where and when to enforce a claim

The Miller Act requires you to file the lawsuit in the local district court where the project is located.

While the law does not have a prescribed time frame for when to file a claim, it does have restrictions on when you can enforce it. The bond claim must be enforced after 90 days but no later than one year of the last day of furnishing service to a project.

This means that if your last day of work is on January 1, you must count 90 days from this date before you can enforce the claim. However, you must not wait too long as there is a one-year limit to your right to enforce, after which the claim expires.

Note that determining the “last day” of furnishing materials or providing labor to a project may be questioned in court to invalidate your claim on a technicality. Typically the basis of this “last day” is the final date stated in the original contract that you signed.

Keep in mind that even if you provided additional work subsequent to this final date, your one-year deadline will not get extended.

Recoverable costs under the Miller Act

The Miller Act allows you to recover costs that may not be limited to the labor or the materials that you provided to the project. However, recovering these costs will depend on other external factors.

Some of these recoverable costs are the following:

  • Attorney fees and other legal costs may be recovered if they were initially indicated as part of the recoverable costs in the original contract
  • Professional services (e.g. design, architecture) cost may be recovered if they were under the scope of work indicated in the original contract
  • Rental fees may be recovered so long as they were initially included in the original contract

There are also costs that could not be recovered under any circumstances, including the following:

  • Costs for materials that were not incorporated in the project that would be used afterwards
  • Costs for the services of office personnel that did not perform on-site work
  • Costs for materials that were not used in the project

Note that being able to recover costs will still be contingent on the type of documents and information that you can provide to beef up your claim.

Best practices when making a Miller Act bond claim

1. Get a copy of the payment bond

This is the first step you should take when working on a public project. The payment bond has all the important info you need in making a bond claim, especially the name and address of the surety company. Remember that you need to know what the surety company is in order for you to file your claim.

You may write a written request to the general contractor asking for a copy of the payment bond. You are entitled to a copy of this bond based on the Miller Act, and also on the Freedom of Information Act.

2. Maintain an efficient bookkeeping and record-keeping system

An effective bond claim relies not solely on timeliness, but more importantly on your ability to provide documentary evidence that could prove your claim. Being able to track your transactions, invoices, and shipping tickets, and all other important paperwork will make your life way easier when filing a bond claim.

Even without a bond claim in the equation, it is considered a good business practice that you keep all your paperwork organized and your bookkeeping routines efficient.

 Further reading