Formed during the height of the Great Depression and the New Deal federal public works programs , the Miller Act of 1935 40 U.S.C. §§ 3131–313 was a federal statute passed by Congress to provide a legal guarantee for laborers, suppliers, financiers, and contractors working on public works construction projects funded by the federal government. More specifically, the Miller Act requires these public projects, if they exceed a total amount of $150,000, to be secured through both a performance and payment bond prior to initiating construction— critically reforming previously established legal and financial protections.
According to the Miller Act, performance bonds are designed to safeguard the government, often referred to as the obligee, if the contractor or principal fails to complete the work, while payment bonds protect both the government and downstream subcontractors and suppliers if the contractor defaults on its payment obligations during the project construction process. For more information about performance and payment bonds, see SuretyNow’s article here.
Through this core legal and regulatory framework, the Miller Act has effectively protected the interests of the federal government, taxpayers, subcontractors, and suppliers for decades. It ensures that construction contractors are qualified to fulfill their obligations to the government, safeguards taxpayer funds through third-party guarantees of performance and payment, and provides a payment remedy for subcontractors and suppliers if the prime contractor becomes insolvent or fails to pay them. Bond underwriters assess the capacity, character, and capital of construction firms to decide on the extension of surety credit. The granting of surety credit demonstrates a contractor’s ability to perform. Thus, Miller Act bond requirements ensure that the federal government can select from a pool of contractors qualified to complete the project when procuring construction services.
As stated previously, the Miller Act requires two important types of contract bonds to be issued for federal public works projects:
In regards to bond amounts:
To obtain a Miller Act performance/payment bond, it is essential for any surety company to properly evaluate a potential contractor through a process known as underwriting. While there are numerous components to the underwriting process for a performance and/or payment bond, surety companies are looking to see how well a prospective contractor fits the 3 C’s of Surety, which are:
For further details and information about the performance and payment bond underwriting process and its required elements, see SuretyNow’s article here.
Any contractor that wishes to work on a public works project funded by the federal government with a sum greater than $150,000 must be issued an appropriate performance and payment bond in accordance with the Miller Act. Public works projects include not only large-scale construction of new public buildings or properties but also any repair, alteration, or improvement projects on existing public sites or properties.
Additionally, any prime contractors, which are special contractors that are contracted by and work directly with the federal government, must also obtain the prescribed performance and payment bonds before proceeding with their federally funded construction projects.
The Miller Act explicitly claims to protect “all persons supplying labor and material in carrying out the work provided for in the contract,” only the following parties are legally protected under the act:
Notably, third-tier and further removed subcontractors and material suppliers are not eligible to file damages and claims under the Miller Act payment bond. Additionally, a second-tier material supplier who provided materials to a first-tier material supplier instead of a first-tier subcontractor is also ineligible to file a recovery claim under the Miller Act payment bond.
Additionally, other professionals who provide their services during the project construction process may also be eligible for financial protection under Miller Act bonds. These include individuals like architects, engineers, surveyors, etc., who play a significant role in the project construction process without directly contracting labor or supplies towards it.
The Miller Act acts as a critical security blanket for subcontractors and suppliers; since they cannot place a claim on federally-owned property, the Miller Act offers them an alternative method of recovery. If a contractor fails to pay these parties, they can file a lawsuit against the contractor in U.S. District Court, doing so in the name of the United States. First-tier subcontractors and suppliers may bring a civil action for unpaid amounts on the payment bond provided by the prime contractor. They can file the case no earlier than 90 days and no later than one year after the last labor was performed or materials supplied. No prior notice is required to file the suit.
When a first-tier subcontractor files an action, their second-tier subcontractors and suppliers can also bring a claim on the payment bond provided by the prime contractor. However, before filing a suit, second-tier subcontractors or suppliers must give written notice of their claim to the prime contractor within 90 days of the last labor performed or materials supplied. After providing this notice, they can file a lawsuit no later than one year from the date of the last labor or materials provided.
As a general principle, the Miller Act protects subcontractors and suppliers from any mispayment or financial wrongdoing from the principal contractor. Therefore, a claimant aiming to file a recovery claim through the Miller Act must demonstrate that the labor or materials for which recovery is sought were provided in execution of the work outlined in the prime contract and that payment has not been received for these labor or materials by the subcontractor. In this way, the scope of labor, materials, and equipment covered under the Miller Act payment bond is extensive, including the vast majority of different materials, supplies, and forms of labor. In addition to obvious items like labor and materials supplied, various other items have also been deemed compensable under Miller Act bonds, including, but not limited to:
In short, subcontractors and suppliers can file a claim for missed payments for the vast majority of services and resources as long as they were deemed necessary for the construction and completion of the project.
As noted previously, before any prospective claimant attempts to file a recovery claim through the Miller Act protections for mispayment from the principal contractor, they must wait 90 days after they last provided labor or materials to a project before initiating a civil action against the Miller Act payment bond. This 90-day period is necessary, as it allows for the flow of payments from the owner and general contractor to the subcontractor performing the work. Until this period has passed, any claim against the Miller Act payment bond is considered premature and invalid.
For claimants who have a direct contract with the general contractor, there are no additional notice requirements to maintain an action against the Miller Act payment bond. However, if a claimant contracts with a subcontractor, thus classifying them as a second-tier subcontractor, they must notify the general contractor of their claim within 90 days of the last provision of labor or materials. This notice must:
This notice must also actually be received by the general contractor within the 90-day period. Any failure to provide this notice will prevent the second-tier subcontractor or material supplier from making a claim against the payment bond.
General contractors might face the risk of paying for the same work twice if they are subject to a Miller Act payment bond claim. Even if they have already paid a first-tier subcontractor, they might still be liable to second-tier or more remote subcontractors who have not been paid. Hence, in this way, the 90-day notice requirement also ensures that general contractors are aware of claims from subcontractors and suppliers, allowing them to withhold payment from first-tier subcontractors who have not paid their subcontractors, preventing the problem of double payments. Notably, this notice requirement does not apply to first-tier subcontractors since general contractors are typically aware of the amounts owed to them.
It is also important to note that repair or warranty work does not extend the 90-day period for notice under the Miller Act and that materials supplied as replacements or under warranty do not count towards extending this notice period or the one-year statute of limitations.
While the Miller Act encompasses a wide range of different types of federally funded projects and protects a large variety of subcontractors and suppliers, there are a few notable exceptions to the Miller Act’s bonding requirements. These include but are not limited to:
A major caveat of the Miller Act is the fact that it is only applicable to projects funded and contracted by the federal government but not individual state governments. However, many states have their own versions of the Federal Miller Act that are often referred to as Little Miller Acts. Each state’s Little Miller Act is similar to its federal counterpart in its bonding requirements and legal protections but varies significantly in its specific bonding amounts and thresholds while regulating construction projects contracted by their respective state government.
For instance, in North Carolina, its Little Miller Act requires both a performance bond and a payment bond on state public construction projects where the total contracts awarded exceed $300,000 and any contractor or construction manager at risk where that contractor's or construction manager's contract with the contracting body exceeds $50,00. In contrast, Florida’s Little Miller Act mandates that contractors on public construction projects over $100,000 must obtain performance and payment bonds, with the bond having a value equal to the full contract amount. Meanwhile, performance and payment bonds are required for state government-funded construction projects worth more than $50,000 and any subdivision project worth more than $5,000 by Illinois’s Little Miller Act, with the value set by the government.
The Federal Miller Act plays a critical role in ensuring the integrity and financial security of federal construction projects. By mandating performance and payment bonds for projects over $150,000, the Act protects the federal government, taxpayers, subcontractors, and suppliers from financial risks associated with contractor defaults. Performance bonds guarantee project completion, while payment bonds ensure that subcontractors and suppliers are paid for their work, even if the prime contractor fails to do so.
The Miller Act’s comprehensive requirements, including the assessment of a contractor's character, capacity, and capital, ensure that only qualified contractors undertake federal projects. This meticulous evaluation process by surety companies helps maintain high standards and reduces the likelihood of project failures. Additionally, the Miller Act provides a clear legal framework for resolving payment disputes, allowing subcontractors and suppliers to seek recovery through the U.S. District Courts if necessary. Through these measures, the overarching aim of the Miller Act remains to provide robust protection and foster trust in the execution of federal construction projects — and serves as an important model and standard for state governments and privately funded construction projects.
