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I. What is a Miller Act bond?

A. Miller Act recognizes that United States government has moral duty to protect parties furnishing materials and labor on government projects and encourages competitive bids for government projects

B. "Public Project"

1. Meaning liberally construed by Courts

2. Means construction or repair of any public building, highway, dam or ship financed by U.S. government funds

3. Borderline projects

a. Covered-Library at a federally funded college

b. Covered-property to be ceded to federal government

c. Not covered-low rent housing project federally funded but built by local housing authority

d. Not covered-interstate highway federally funded but contract let by state

C. Contract must be greater than $100,000--Bond requirement can be waived (or required on smaller contracts) by contracting officer

1. Bond can be waived by Secretary of Army, Navy, Air Force, Treasury and Commerce

2. Bond can be waived on construction and repair of merchant marine vessels

3. Contracting Officer cannot be liable for negligence by failing to require a bond

D. Actually is two bonds

1. Performance bond to benefit of US government

2. Payment bond to benefit materialmen, laborers and subcontractors (the bond which is the subject here)

II. Who can make a claim on a Miller Act bond?

A. Generally, party who is direct subcontractor or supplier for improvement of real estate or construction of a ship

B. But, only two classes of mechanic covered

1. Parties contracting directly with the prime contractor (the party who contracts with the federal government)

a. Subcontractors

b. Materialmen and laborers

2. Parties contracting directly with a subcontractor of the prime

a. "Subcontractor" not defined by Miller Act

b. United States Supreme Court defines "subcontractor" as a party to whom the prime contractor has delegated a specific part of its contract with the federal government

c. Examples

(1) Covered-Supplier to sub of prime

(2) Covered-Sub to prime

(3) Not Covered-Supplier to supplier of prime

(4) Not Covered-Supplier to sub of sub to prime

III. What losses are protected by a Miller Act bond?

A. Limited to claims for the prime's (or subs) failure to pay for materials and labor used to perform prime contract

1. Standard of value is contractual value of labor or materials actually used on project

2. Examples

a. Cost of leased equipment and maintenance of it

b. Cost of authorized change orders

c. All material actually delivered to project which supplier believes will be used on it

d. Lumber used in scaffolds and forms

e. Gas and oil for equipment on project site

B. Interest-Covered by state law

1. Virginia allows 6% by statute if no written agreement

2. Virginia allows rate specified in written contract

C. Attorney's fees-4th Circuit, which includes Virginia, specifically allows recovery if claimant is entitled to attorney's fees by contract with its immediate contractor

IV. How is a Miller Act claim made?

A. If claimant is in direct contract with prime-no notice required

B. If claimant is not in direct contract with prime-Must send Notice to prime so it is received within 90 days of last labor or material stating amount claimed, name of party benefited and nature of work by any means that provides third-party verification

1. Cannot bring suit on bond unless Notice is given

2. No particular form for notice, merely sufficient to apprise prime of nature of claim, amount claimed and name of contractor the work/materials benefited

V. How is Miller Act claim enforced if bonding company refuses to pay?

A. Suit in United States District Court (and Division, if applicable) where the prime contract was performed

1. Suit must be brought within one year from date last work or material furnished, but cannot be sooner than 90 days from that date

a. "Last date" problems

(1) One year not extended by repairs, corrections, warranty work or inspection after completion

(2) One year is extended by extra work and any performance on original contract, irregardless of amount

b. Suit will be absolutely barred if not filed within one year limitation

2. Contract performed outside USA then District where claimant is located

3. Suit governed by normal federal civil procedure, defendant(s) can request and obtain a jury trial

B. If judgment obtained against bonding company it must pay within 30 days or will be barred from bonding any federal project in the world

© 2015 Eugene W. Shannon, PLC



  Eugene W. Shannon, PLC
ATTORNEY AT LAW

Suite 200
426 East Freemason Street
Norfolk, Virginia 23510

Phone: 757-625-1771
 
Fax: 757-622-1703

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