Like Mechanic's Liens, time limitations must be strictly adhered to in order to keep from losing valuable rights under the payment bond. The current Miller Act requires labor and payment bonds to be posted with corporate surety on any federal construction project exceeding the amount of $100,000 by the prime contractor (the party contracting with the federal government). If the subcontractor/supplier has contracted with the contractor posting the bond (prime contractor) no notice is required.
An unpaid subcontractor or supplier who has not contracted with the prime contractor, but has contracted with a subcontractor to the prime, must give notice, generally, so that the notice is received by certified mail return receipt or verified express mail delivery, to the contractor who posted the payment bond within 90 days of the last day work was performed or material was furnished. Once proper notice is given the unpaid contractor or supplier must wait until 90 days have passed from the last time work was performed or materials were delivered before filing suit against the bond for the unpaid amount. In all events, if notice is given and the contractor/supplier remains unpaid suit must be filed before a year has elapsed from the last day work was performed or materials were furnished.
Suit must be brought in the United States District Court where the project is located. Federal rules strictly govern the insurance companies' financial health. Only solvent, creditworthy sureties are permitted to write Miller Act bonds, so payment of any recovery is a virtual certainty. Usually the surety is a division or subsidiary of a well-known general lines insurer.
Only a subcontractor and/or supplier to the prime contractor (the one usually posting the bond) or to the prime's subcontractor (called a first-tier subcontractor), can maintain a claim on the Miller Act bond. As a subcontractor or supplier to a supplier is not covered by these bonds, party coverage is not quite as broad as under a Mechanic's Lien. The unpaid supplier claimant does not have to prove that the material was actually used and affixed to the construction project, but only that it was furnished with a good-faith belief that it would be used on the project. Unlike a Mechanic's Lien claimant, the contractor/supplier claimant against a bond will receive full payment even if the defaulting contractor has been fully paid by the federal government or the prime contractor. This adds a high level of protection for an unpaid contractor/supplier, if they act to protect their rights under the bond.
An important 2017 case out of the Eastern District of Virginia ruled that no-damages-for-delay clauses, like pay-when-paid or pay-if-paid clauses, are invalid in Miller Act cases. These clauses which are popular language in prime contractors' contract documents were found to contravene the language and purpose of the federal Miller Act and thus were invalid.
Generally, a Miller Act bond will cover any indebtedness contracted for with the defaulting party, including attorney's fees. This is a significant advantage over a Virginia Mechanic's Lien where attorney's fees are never recoverable.
© 2018 Eugene W. Shannon, PLC