January 08, 2014
The Miller Act provides the exclusive payment remedy available to a subcontractor or a supplier on a federal contract for the construction or improvement of a public work. Under the Miller Act, a payment bond in an amount equal to the total amount payable by the terms of the prime contract must be posted. Note that, on occasion, the contracting officer for the federal project may reduce the amount of the Miller Act payment bond, but the amount of the payment bond cannot be less than the amount of the performance bond; the performance bond is also set by the contracting officer at the amount he or she determines is adequate to protect the Government's interest.
A Miller Act payment bond provides for payment of all persons supplying labor or material used in the work covered by the prime contract. All first and second tier subcontractors and suppliers are entitled to make a claim against a Miller Act payment bond. Third-tier subcontractors and suppliers, however, are not protected by and have no remedy under the Miller Act payment bond.
To prevail on a Miller Act payment bond claim, the claimant must establish that it furnished labor or material that was used in the prosecution of the work, or that it furnished labor or material in good faith and with the reasonable belief that it was intended for use in the prosecution of work. If the claimant's labor or material was actually used on another job, the claimant still has rights under the Miller Act payment bond unless the claimant knew or should have known that its labor or materials were being diverted to another project.
The first step in presenting a claim under a Miller Act payment bond is to file a written notice with the prime contractor. The notice must be filed within 90 days of the date the claimant last performed labor or furnished materials for which the claim is made. The notice must state the amount claimed and the name of the party to whom labor or materials were furnished. The notice must be delivered by a means that provides a written, third-party verification of delivery. Thus, for example, personal delivery by a third-party who signs an affidavit verifying delivery would be acceptable. Certified mail with a return receipt would also be acceptable. In addition, sending a copy of the notice to the surety is recommended, but it is not required.
If the claimant is not paid after the notice is sent, a lawsuit on the Miller Act bond must be brought by the claimant within one year after the claimant last performed labor or supplied material to the job site. This is true regardless of when the contract is completed. The claimant brings the lawsuit against the payment bond surety but files the lawsuit in the name of the United States on behalf of the claimant. The prime contractor for the project may be, but is not required to be, named as a defendant in the action. The action must be filed in the federal district court where the job is located. The one-year time limit for commencing a lawsuit under the Miller Act is not satisfied by filing an action in state court or a demand for arbitration. Further, the presence of an arbitration clause in a subcontract agreement does not prevent the unpaid subcontractor from pursuing a claim against the Miller Act payment bond in federal court.
A claimant's recovery under the Miller Act payment bond is measured by either the contract price including extra work, or the reasonable value of the labor or material furnished to the job. The claimant is entitled to seek interest on the amount owed, which is recoverable to the extent provided under state law. In California, 10 percent is the statutory rate of prejudgment interest. The courts are split, however, as to whether and under what circumstances a Miller Act payment bond claimant is entitled to recover attorney's fees and costs.