Thursday, October 22, 2009

On a Federal Construction Project? Remember the Miller Act

A New Guest Post from Christopher Hill

Chris Hill is a construction lawyer at DurretteBradshaw, PLC in Richmond, Virginia, LEED AP, author of the Construction Law Musings Blog and member of Virginia's Legal Elite in Construction Law. He specializes in mechanic's liens, occupational safety issues, contract consulting and review and general risk management for all levels of construction professionals from contractors to subcontractors to material men.

Federal and State government work are a growth area in construction these days. With the economy in a downturn (though possibly turning around according to ENR), government projects are even more desirable for commercial contractors.

With this trend toward government contracting, becoming the lowest bidder and squeezing your margins is a big temptation, or even necessity. Along with this lower margin comes higher risk.

However, one saving grace for contractors on Federal projects is the Miller Act. Essentially, the Miller Act was created because contractors cannot put a mechanic’s lien on federal government property. It requires that all projects with a contract value over $100,000.00 have a payment and performance bond, provided by the general contractor.

The payment bond is what I will discuss here as it is the most utilized of the two. As its name implies, this bond is there to assure that subcontractors and suppliers who provide work to the project are paid. With the proper notice, and when meeting the filing requirements, the question then becomes the value of what was provided, and not whether payment will occur.

The Miller Act requires that a subcontractor or party, contracting with a subcontractor, but not in a direct contractual relationship with the general contractor, provide a notice to the general contractor (or principal on the bond if the principal and GC are different) within 90 days of the last work performed or material supplied for which it claims payment. Then, if no payment is forthcoming within 90 days of the date payment is due, suit must be filed within one year of this last work. If this procedure is filed, in my experience a settlement will be forthcoming.

One caveat, the protection of a Miller Act bond extends down only as far as the “second tier” level. In short, a supplier to a second tier subcontractor is not covered. Make sure you keep this in mind when you consider your (or your client’s) claim.

The federal Miller Act has cousins (or “Little Miller Acts”) in most every state that relate to state government projects, so I encourage you to check these out and call an attorney (in MA, Andrea is a good one) to discuss your options with these projects.