The Miller Act (1935) is a federal law that requires contractors performing public work projects (addition or general repairing of any governmental building or public works facilities) to produce a performance bond as well as a labor and material payment bond in any contracts that exceed $100,000. Since government construction projects are unable to protect themselves from non-payment with a traditional lien, the Miller Act was created to protect the subcontractors as well as the suppliers when dealing with projects owned by the federal government. The corporate surety company that is willing to issue these two bonds must be registered as a qualified surety by the United States Department of Treasury, which is issued on a yearly cycle.
The requirement of the payment bond is to protect public money by guaranteeing payment from the prime contractor. It takes the risk off of the shoulders of the subcontractors and placing it directly onto the surety company that has issued the bond. Subcontractors as well as the suppliers of material for the project who have a direct binding contract with the prime contractor are protected by the Miller Act. Other subcontractors as well as material suppliers who have contracts with the subcontractors contracted with the prime contractor are also protected under the Miller Act. Any other parties who find themselves outside of these two tiers of contracts are considered too distant to make a claim against the payment bond.
Performance bonds also protect the government, guaranteeing the completion of the project that has been awarded. Generally, the amount that is required to satisfactorily protect the government by the contracting officer is one hundred percent of the total contract price.