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Bonds under the Miller Act

Bonds under the Miller Act

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Bonds under the Miller Act

The Miller Act (40 U.S.C.A §§ 3131 et seq.) applies to almost every federal government construction project that is over $100,000. Exempt from the Miller act requirements are certain Army, Navy, Air Force, and Coast Guard contracts as stipulated in 40 U.S.C.A. § 3134(a), and certain transportation contracts entered into pursuant to the Merchant Marine Act (46 U.S.C.A. §§ 1101 et seq.) and the Merchant Ship Sales Act of 1946 (40 U.S.C.A. § 3134(b)), as well as contracts performed in foreign countries (40 U.S.C.A. § 3131(d)).

The Miller Act requires separate payments on each prime contract and allows the contracting agency to require such other bonds as it may choose. (40 U.S.C.A. § 3131(b)(2)) (“The amount of the payment bond shall be equal to the total amount payable by the terms of the contract unless the officer awarding the contract determines, in a writing supported by specific findings, that a payment bond in that amount is impractical. The amount of the payment bond shall not be less than the amount of the performance bond.”) The Miller Act also requires performance bonds on each contract that falls within its parameters. 40 U.S.C.A. § 3131(b)(1) (The amount of the bond is set by the awarding officer).

While the Miller Act does not provide guidance for remedy if a federal agency awards a contract without the required bonds, the agency may still be liable directly to a party that would have been protected under the required payment bond if the agency waived immunity, such as if the agency had the power to sue and be sued. Kennedy Elec. Co., Inc. v. U.S. Postal Service, 508 F.2d 954 (10th Cir. 1974) (where the court allowed a subcontractor to directly recover from the Postal Service under an equitable lien theory and based upon the right of the Postal Service to sue and be sued). Federal agencies may also be liable directly to a potential bond claimant for funds that are due to the prime contractor, even when the contract is bonded as required by the Miller Act. Active Fire Sprinkler Corp. v. U.S. Postal Service, 811 F.2d 747 (2d Cir. 1987).

The Miller Act, intending to be remedial and construed liberally, provides separate protections for separate parties. Fleisher Engineering & Construction Co. v. U.S., for Use and Benefit of Hallenbeck, 311 U.S. 15 (1940). Miller Act performance bonds are intended to protect the United States and its agencies, and a Miller Act payment bond is intended to benefit those who perform labor or furnish materials, only allowing those who furnish labor or materials to recover under payment bond. U.S. Fidelity & Guaranty Co. v. American State Bank, 372 F.2d 449 (10th Cir. 1967).

The time frames for filing a claim under the Miller Act can be very short.  A contractor that is experiencing payment difficulties on a federal project should immediately seek local counsel to review its payment rights and make sure that no crucial deadlines are missed.  Timely submittal of a Miller Act claim is vital to securing payment since mechanic’s liens cannot be filed on any federal project.

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