Have you ever worked on a public construction project for the federal government? How about a public construction project for the State of New York or even a local municipality? If so, then you may know that you cannot file a traditional mechanic’s lien (that attaches to the property). In New York, you can file a mechanic’s lien against the public fund, known as a lien on a public improvement. But on a federal project, you cannot file any type of mechanic’s lien. Instead, public construction projects, both federal and state, almost always give contractors, suppliers, materialmen, etc. the protection of a payment bond. These bonds are posted thanks to the Miller Act (federal projects) and its little brother in New York, often colloquially referred to as the “little Miller Act”, found in State Finance Law Section 137. Here is what anyone working on a construction project within the State of New York needs to know about protecting itself from non-payment and protecting its payment bond claim.
The Miller Act
The Miller Act, enacted in 1935, protects subcontractors and material suppliers on any public construction project of $100,000 or more in the United States. The Miller Act requires the posting of a bond, known as a payment bond, that provides the subcontractor or material supplier with protection against non-payment. In essence, the payment bond will guarantee that if the subcontractor or material supplier performed its work properly, and was not paid by the general contractor for any reason, the surety that issued the bond will step in and make the payment. You probably noticed that I did not mention general contractors (a/k/a prime contractors) in those that can file a claim against the payment bond. That’s because they can’t. The Miller Act does not protect the general/prime contractor from non-payment.
The time within which to bring a Miller Act claim is short. Claims must be brought to suit within 1 year of the last time that you provided labor or materials to the project. Sub-sub contractors and material suppliers to subcontractors must jump through the additional hoop of serving a proper written notice, satisfying the requirements of the Miller Act, on the general/prime contractor within 90 days of the time that you last provided labor or materials to the project. The Miller Act is strict and non-compliance with the notice requirements will likely lead to rejection of the claim and no protection under the bond. It is therefore strongly recommended that you hire an attorney to serve the notice for you.
New York’s Little Miller Act (State Finance Law Section 137)
Subcontractors and suppliers in New York also are protected when they perform work on a public project (whether it is the State, County, City or Town). This protection is provided through State Finance Law Section 137. State Finance Law Section 137 (a/k/a the Little Miller Act) applies to public construction projects of more than $100,000 but only if those projects are not subject to New York’s Wick’s Law
. State Finance Law Section 137 provides that an eligible party may bring a claim against the bond once 90 days have elapsed since the last furnishing of labor or materials and a non-payment situation exists. Sub-subcontractors and suppliers and materialmen to subcontractors may bring a claim against the payment bond as well but only if, within 120 days of the time that they last furnished labor or materials to the project, they have put the contractor on notice of their claim.
The notice to the contractor must set forth with substantial accuracy: 1) the amount claimed; 2) the name of the party to whom the material was furnished or labor was performed; and 3) must be served personally or registered (not certified) mail. You should note that if the contractor actually receives the notice it is effective even if the service method was not proper under the statute but it is not recommended that you try this method. Stick to the statute when at all possible to avoid problems with service.
The lawsuit against a bond procured pursuant to State Finance Law Section 137 must be filed within 1 year of the date that the project was completed and accepted by the public owner. Additionally, State Finance Law Section 137(c) provides that the claim may include interest and that the Court may, in its discretion, award attorney’s fees to the prevailing party as well, and the fees will be covered by the bond, if it is determined that the original claim or the defense to the claim was without substantial basis in law or fact.
Like the Miller Act, the notice requirements of the Little Miller Act in New York are strict. It is wise to hire an attorney to prepare and serve the notice on your behalf to make sure that you do not lose your rights to protection under the bond due to a technical misstep.
Vincent T. Pallaci is a partner in the New York law firm of Kushnick | Pallaci, PLLC. His practice focuses primarily on the areas of construction law, including surety claims
. He can be contacted at (631) 752-7100 or email@example.com