The Miller Act & What It Means

Miller ActThe 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.


Eric is the Webmaster of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog.

12 Comments

kim daewon

except U.S.A. all the world use a bank guarantee. why USA Government ban the use of bank guarantee.

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Jon

If your a GC and you are already into a contract with a client were they have put up 20% money up front and then are now getting an SBA loan, were the bank is trying to waive a performance bond for them by having me the GC to fill a out a credit application with substantial financial request, Question why would I have to fill out an application that would show up on my credit record and what would my liability be if the home owner defaulted on the loan, could the bank come after me for payments ?

thank you Jon

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Eric Weisbrot

Hey Jon,

The simple answer is no.

More specifically, your loan with the SBA has nothing to do with you if the homeowner defaulted payment. The bank is just trying to get the bond waived by doing a credit review of the GC/contractor. The contractor is not co-signing on the SBA loan so they cannot come after you in the homeowner defaulted on the loan.

Let me know if you have any other questions.

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Guest

What is the purpose of listing the premium on the top of the performance bond?

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Eric Weisbrot

Hello there!

Some bond forms require the premium to be listed on the bond. Not many require this, but it’s purpose is to disclose what the contractor paid for the bond so they cannot mark it up in the cost to the end recipient of the bond.

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Pam

Is a subcontractor's profit recoverable under the MIller Act or are only costs covered? If the subcontractor did not perform well on the subcontract, but ultimately all work was accepted, does a subcontractor still get to collect their profit under the Miller Act if its allowed to begin with?

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Eric Weisbrot

Hey Pam,

“Performing well” is a subjective term. Ultimately, it depends if the sub was terminated from the sub-contract or not for lack of performance. If the contractor was not terminated, however the job simply completed late, then the subcontractor may be subject to the liquidated damages provision which would eat into their profit. Only when a subcontractor has been terminated are they unable to get additional payments from the owner.

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Jim Mulligan

Moving back to the above topic – "the premium on the top of the performance bond?" – isn't the cost of the bond assigned to the obligee?

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Eric Weisbrot

Hey Jim,

As mentioned above, "the premium on the top of the performance bond?" refers to the fact that some bond forms require the premium to be listed on the bond. Not many require this, but it’s purpose is to disclose what the contractor paid for the bond so they cannot mark it up in the cost to the end recipient of the bond.

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Jim Mulligan

Thanks Eric

One of those distant recollections that ebb & flow like one of Scrooges nocturnal visitors is a purported situation where the end recipient assumed the cost of a bond that never existed. Needless to say Tiny Tim's recovery was ill-fated.

I much appreciate the inclusion of "registered as a qualified surety by the United States Department of Treasury, which is issued on a yearly cycle" knowing of surities that needed surety.

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