The Miller Act is something you’ll often hear about in the construction industry. But what exactly is this law?
Let’s dig in, so you get the full picture of when and how the Miller Act applies to you.
What Is the Miller Act?
The U.S. federal government passed the Miller Act in 1935 when facilities and infrastructure construction was booming.
The Miller Act (40 U.S.C. Section 3131 to 3134), as implemented by the Federal Acquisition Regulation (FAR), requires contractors to get surety bonds for federal projects over $150,000.
Specifically, you’ll need to get performance and payment bonds, which are types of surety bonds. They protect the federal government, taxpayer money and the subcontractors and material suppliers you work with. The bonds have to be issued by a surety on the Treasury Department’s list of qualifying bonding companies.
These bonds work as an extra line of credit for your contracting business, provided by the surety company. In return, you pay a premium for the bond, which is a percentage of the bond amount you’re required to get.
Typically, you'll have to get a bond equal to a large percentage of the project's value. More specifically:
- Performance bonds—between 50 percent and 100 percent of the total contract value
- Payment bonds—100 percent of the total contract value, or different if the project owner decides so, but no less than the performance bond’s amount
Read on to learn more about what these bonds actually mean, and how the claim process works.
Protection for the Federal Government and Taxpayers
Performance bonds required under the Miller Act guarantee the completion of public works. They ensure the federal government and taxpayers are not left paying the bill for problematic projects.
How do they do that? If a contractor defaults or doesn’t deliver a project on time and in the agreed-upon quality, the bond allows the project owner—in this case federal authorities—to complete the project without a financial loss. The public authorities can get money from the bond and finish the project so they can avoid delays and additional expenses.
The fact that a contractor is bonded is a sign of trustworthiness for federal bodies because the bonding process is rigorous. Surety companies don’t provide bonds to contractors with unsound financial practices or a history of defaults or similar issues. By working with a bonded contractor, government authorities make sure that taxpayer money isn’t being used irresponsibly.
Protection for Subcontractors and Suppliers
What about the other bonds required under the Miller Act—payment bonds?
They protect the partners of prime contractors working on federal projects. Payment bonds guarantee timely and full payments to subcontractors and suppliers providing labor and materials under public contracts.
Payment bonds work like a mechanic’s lien and give subcontractors and suppliers some serious peace of mind. Otherwise, they have to go through lengthy and often unsuccessful civil actions to get paid. When a general contractor has a payment bond, subcontractors and suppliers can directly seek any due payments through the bond. This is especially helpful for smaller contractors who may not have the resources for lawsuits.
Who’s protected under the Miller Act?
- First-tier subcontractors and suppliers
- Second-tier subcontractors
- Second-tier suppliers in a direct contractual relationship with a first-tier subcontractor
Third-tier and lower-tier subcontractors and suppliers, however, are not protected under the Miller Act.
Bond Claims Under the Miller Act
How do bonds protect the federal government and prime contractors’ suppliers and subcontractors?
Claims are the safety mechanism. Here’s how they work for payment and performance bonds.
Miller Act Claims on Performance Bonds
Getting a claim on your bond is not a good idea. The best approach is to always seek a different way to handle issues that may arise between you and the project owner.
But—if you do unfortunately default or breach a contract, there are a few scenarios that may happen.
First, the surety providing the bond may step in to act as a mediator and seek a resolution. You, the contractor, may then reach a settlement with the project owner, known as the contracting officer, and avoid a claim process. This is always the preferred option!
If that doesn’t work and the project owner does file a claim against the payment bond, the surety has to investigate the case.
There are two typical options if the surety finds the claim as legitimate:
- Tender—When the contractor can’t complete the work under the contract, the surety helps the project owner find another contractor to finish the project.
- Takeover—The surety takes on the responsibility to find a new contractor to finish the project. This often is a ‘completion contractor’ who is experienced in finishing projects after contractor default.
As the original prime contractor, you carry the liability and must compensate the surety for all incurred costs up to the amount of the performance bond. The surety may provide finances and support during the claim process, but the financial responsibility always remains with the bonded contractor. That’s why it’s best to stay away from situations that may end up in a claim against your bond.
Claims on Payment Bonds under the Miller Act
Subcontractors and suppliers can file claims against prime contractors’ Miller Act payment bonds to protect themselves from non-payment.
First-tier subcontractors and suppliers don’t have to send a preliminary notice to the prime contractor and can directly send a payment claim notice. If the claim is not resolved and the subcontractor or supplier doesn’t get their due payments, they can file a lawsuit with a district court. Claimants can do this within one year from completing the work or providing materials.
Second-tier subcontractors and suppliers to first-tier subcontractors can file a claim within a 90-day period after they provide the work or materials. They have to send a written notice to the prime contractor before bringing the case to court, which they can do within one year.
Again, as with performance bonds, the surety will first try to resolve the situation before a claim is filed. If the subcontractor or supplier still makes the claim, the surety will work with the bonded contractor and the claimant to find a solution. If that doesn’t work either, the last step would be a lawsuit. While the surety may provide compensation at first, the prime contractor remains liable for all claim costs.
‘Little Miller Acts’ on the State Level
Since the Miller Act applies only to federal construction projects, states have created their own versions of it. They are often referred to as ‘Little Miller Acts’ and ensure extra protection for state projects through surety bonds.
Each state calls its ‘Little Miller Act’ something different. States also have varying rules for how much a project costs before it must be bonded, and the amount of payment and performance bonds required too. There are different options for bond waivers as well.
All of the state’s regulations, however, are based on the federal Miller Act and have the same purpose—to protect state government and taxpayers’ money and the subcontractors and suppliers of prime contractors.
Here are the contract amounts above which performance and payment bonds are required in each state:
- Alabama — $50,000
- Alaska — $100,000
- Arizona — public contracts of any value
- Arkansas — $50,000
- California — $25,000
- Colorado — $150,000
- Connecticut — $100,000
- Delaware — public contracts of any value
- D.C. — $25,000
- Florida — $100,000
- Georgia — $100,000
- Hawaii — $25,000
- Idaho — public contracts of any value
- Illinois — $50,000
- Indiana — $200,000
- Iowa — $25,000
- Kansas — $100,000
- Kentucky — $40,000
- Louisiana — $5,000
- Maine — $125,000
- Maryland — $100,000
- Massachusetts — $2,000
- Michigan — $50,000
- Minnesota — $25,000
- Mississippi — public contracts of any value
- Missouri — $25,000
- Montana — public contracts of any value
- Nebraska — $15,000
- Nevada — $100,000
- New Hampshire — $25,000
- New Jersey — $100,000 for school projects and $200,000 for all others
- New Mexico — $25,000
- New York — $100,000
- North Carolina — $300,000
- North Dakota — $100,000
- Ohio — public contracts of any value
- Oklahoma — $50,000
- Oregon — $10,000
- Pennsylvania — $5,000
- Rhode Island — $50,000
- South Carolina — public contracts of any value
- South Dakota — public contracts of any value
- Tennessee — public contracts of any value
- Texas — public contracts of any value
- Utah — public contracts of any value
- Vermont — public contracts of any value
- Virginia — $100,000
- Washington — $35,000
- West Virginia — public contracts of any value
- Wisconsin — $10,000
- Wyoming — $7,500
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