Federal & State Bond Claims
The Miller Act of 1935, provides protection to subcontractors and suppliers on federal jobs. On federal projects, payment bonds are required for any contract “for the construction, alteration or repair of any public building or public work.” No liens are allowed to be filed against federal property, meaning that subcontractors and suppliers must look to a payment bond for satisfaction, should their contractor not pay them.
Kelly Davis, Esq.
Few construction lawyers have the first-hand experience to understand fully the complex issues that their clients face. When Kelly Davis was a child, her father started a small residential construction business, and there began Kelly’s love of construction. She was the little girl that would be running all around the construction projects. Over the years, her father’s business grew into developing commercial buildings, and high-end residential homes. As a result, Kelly has grown up, worked in and lived around the construction industry her entire life.
In this CLE class clip, Kelly discusses federal and state bond claims.
The Miller Act only reaches suppliers to the prime contractor, first tier subcontractors, and second-tier materialmen, and second tier sub-contractors. Second tier materialmen and third tier subcontractors are not covered.
A suit on a Miller Act bond must be brought no sooner than 90 days after the last of the claimant’s work is done and no later than the expiration of one year after final completion of the claimant’s work. The lawsuit must be brought in the United States federal district court located in a district where the contract was performed.
It is important to note that “final completion” requirement is often vague. Warranty work, repair, or inspection work will not extend to the date for bringing suit. Warranty work comes after final completion, but what if an inspection reveals that contractual obligations have not been met? At least one case has held that the time limit to sue was extended until the contract was completed performed.
The text of the Miller Act is silent with respect to attorney fees and prejudgment interest. However, federal common law allows the recovery of both under certain circumstances. Miller Act claimants are entitled to attorney fees, if the claimant has a contractual basis for attorney fees. In many cases, the bond claimant need only show there is an attorney fee provision in the bond claimant’s contract or credit application.
Federal courts will consider state law as a guide to determine whether or not to award prejudgment interest. Thus, if the claimant’s contract contains a provision entitling the claimant to interest, and state law would allow the recovery of such interest, then the claimant may be able to recover prejudgment interest under the Miller Act against the surety.
A prime contractor is one who has a contract directly with the governmental body. A prime contractor must furnish a payment bond for the benefit of subcontractors and suppliers. When work is preformed on a state construction project, and not paid, a “lien” can be filed against the project pursuant to what is generally called the “Little Miller Act.” Almost every state has one. Since, the claim is not against the state, or county’s actual property, but instead against a posted bond, the claim is not really called a “lien” but is more frequently referred to as a “bond claim” or “Little Miller Act claim.”
The following situations have been tested in various courts and have been deemed covered by the payment bond:
- Labor paid out on a commission basis qualifies
- Where labor is furnished by a temp agency then the temp agency qualifies to make a claim on the bond
The following examples are a few scenarios that have been deemed not covered by the payment bond:
- Plans that were provided but were never used on the construction project
- Insurance premiums that are normally held, such as workers compensation and liability coverage
- And, of course, funds