Every prime contractor with a government contract likely relies on the services of subcontractors to get the job done. And those subcontractors need some guarantee that they will be paid for their work. In commercial construction settings, subcontractors have the option to file a mechanics lien. But with a government project, they can only file suit through a Miller Act bond.
Understanding the Miller Act and its relevance to construction pros
The Miller Act was first passed in 1935 and recodified in 2002. It is the common name for federal statute 40 U.S.C. §§ 3131–34. According to this law, when the federal government awards any contract worth $100,000 or more for the construction, repair or alteration of public buildings or public works, the prime contractor must provide a surety payment bond, as well as a surety performance bond.
The payment bond protects the suppliers and subcontractors, guaranteeing they will be paid for their labor and materials. The performance bond guarantees that the government project will be completed in accordance with the contract.
Requirements for a Miller Act cause of action
If a subcontractor is not paid for its work, it can sue the prime contractor through a Miller Act cause of action. However, if the prime contractor failed to secure the bond as it was legally required to do, the subcontractor may not be able to file a claim.
What is tricky is that the Miller Act does not clearly state that a bond is required for a subcontractor to bring a claim. So a subcontractor working on a federal project may automatically think it has Miller Act cause of action. But if there is no bond—meaning the prime contractor broke the law—the subcontractor has no recourse for unpaid work.
Another wrinkle is that subcontractors sometimes will try to protect themselves by securing their own bonds, listing another subcontractor or prime as the obligee. But this type of bond is not suitable for a Miller Act claim. The only type of bond that satisfies the Miller Act is one obtained by a prime contractor with the government as the obligee.
Advice for commercial contractors and subcontractors
Prime contractors must be aware of the bond requirement when they bid on federal projects and take that requirement seriously. If they do not secure such a bond, they can put their business—and their subcontractors—at risk.
In addition, before signing a contract with a prime on a federal project, subcontractors must ensure that the proper surety bond has been filed. Otherwise, when trying to file a Miller Act claim, they may learn from a judge or an attorney that they are not eligible. Then they will remain unpaid with no options to recoup those funds.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.