Bond Protection Under the Miller Act – PART 1
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.
More on the Miller Act will appear next week – stay tuned.