October 13, 2008 by Matt Gerdes
The Miller Act (1935) is a federal law that places the requirement for possible contractors to work on public projects dealing with the construction, addition or even 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 governmentally owned construction projects are unable to protect themselves from a non-payment from a prime contractor with a traditional mechanic’s 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 by taking the risk off of the shoulders of the subcontractors and placing it directly onto the surety company that has issued the bond. Those who are protected by the Miller Act are the subcontractors as well as the suppliers of material for the project who have a direct binding contract with the prime contractor. 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, excluding any contracts written to the supplier contracted with the prime contractor. 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 required to protect the government in seeing 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. The inability to produce a performance bond on the part of the general contractor means very little in regards of the best interests of the subcontractors with contracts with the prime contractor. It is the payment bond that serves as protection for the subcontractors in guaranteeing payment from the prime contractor for the completion of the project. In these regards, the responsibility of ensuring the existence of the payment bond lies with the subcontractors and suppliers prior to becoming contractually obligated to work on the project.
