The Miller Act & What It Means

The Miller Act (1935) is a federal law that requires contractors performing public work projects (additions or general repairing of any governmental building or public works facilities) to obtain a performance bond as well as a labor and material payment bond in any contracts that exceed $100,000.

Why Does the Miller Act Exist?

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 Little Miller Act

In addition to the Miller Act, there is a Little Miller Act that includes state specific statutes across the country, which are based on the federal Miller Act. You can take a look at each state's Little Miller Act requirements here.

How Do Performance and Payment Bonds Work?

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. If you would like to learn more about what surety bonds are and how they work, you can read our detailed guide here.

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. You can take a look at the most frequent surety bond related questions.

Want to Learn More About Contract Bonds?

If you'd like to learn more about how contract bonds work (bid bonds, performance bonds, maintenance bonds, etc.) you can visit our website, which includes comprehensive guides about how these various bond types work, and how you can obtain them.


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12 Comments

JWJ  Admin
December 16, 2011

In reply to by admin

[...] principal: the business or person purchasing the bond Background of Payment and Performance Bonds The Miller Act, which requires bonds on federal construction projects with contracts exceeding $100,000, served as [...]

kim daewon
November 4, 2013

In reply to by admin

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

Eric Weisbrot
November 4, 2013

In reply to by kim daewon

Hey Kim,

We don't deal with bank guarantees, only surety bonds; so I can't answer your question.

Jon
September 15, 2015

In reply to by admin

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

Eric Weisbrot
September 15, 2015

In reply to by Jon

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.

Eric Weisbrot
May 6, 2016

In reply to by admin

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.

Guest
May 6, 2016

In reply to by admin

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

Jim Mulligan
December 29, 2016

In reply to by admin

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.

Eric Weisbrot
October 10, 2016

In reply to by admin

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.

Pam
October 7, 2016

In reply to by admin

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?

Jim Mulligan
December 29, 2016

In reply to by admin

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?

Eric Weisbrot
December 29, 2016

In reply to by Jim Mulligan

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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