Federal public work construction projects are unique in that there are no Stop Payment Notice or Mechanics Lien remedies available. Furthermore, although a remedy is available by proceeding against the original contractor’s payment bond under a federal law known as the “Miller Act” and its corresponding Federal Regulations (40 USCS 3131 et seq. and 48 CFR 28.101-1 et seq.), this remedy is not available to all subcontractors or suppliers. In addition, there are circumstances where a different form of security can be substituted for the payment bond (40 USCS 3131(b)(2)).
Among those who generally cannot sue on the Miller Act Payment Bond are third-tier subcontractors and suppliers to suppliers. (See J.W. Bateson Company v. Board of Trustees, 434 U.S. 586 (1978)). As a general rule, every subcontractor, laborer, or material supplier who deals directly with the prime contractor may bring a lawsuit against the bond company providing the Miller Act Payment Bond. Further, every subcontractor, laborer, or material supplier who has a direct contractual relationship with a first tier subcontractor may bring such an action. See the diagram below. In the diagram, only subcontractors and material suppliers ABOVE the heavy black dotted line can proceed against the original contractor’s Miller Act Payment Bond.
If a claimant is unsure whether the project is a state or local public work or a federal public work, or if the claimant is not sure whether they have a close enough relationship with the public entity to sue under a federal project Miller Act payment bond, the claimant should cover its bases by following BOTH state and federal procedures. The claimant should also consult an attorney so that its status and the character of the project can be clarified and the current state of the law determined. There may also be exceptions to the above general rules which may allow a Miller Act claim to be made outside of the general rules.
On federal projects within California (owner is one of the agencies of the Federal Government, e.g., Corps of Engineers) the general rules are as follows:
A. If the claimant is the direct contractor, and is not paid, the contract claim must be made against the federal government. The claimant cannot make a claim on the Miller Act Payment Bond. Contact an attorney about filing a lawsuit.
B. If the claimant has furnished work or materials under a direct contractual relationship with the direct contractor:
- The claimant can sue the direct contractor for breach of contract; an
- The claimant can sue the surety on the Miller Act Bond posted by the direct contractor.
- The claimant must file suit no later than one year from the date the claimant last furnished work or materials to the project.
C. If the claimant has a direct contractual relationship with a first tier subcontractor:
- The claimant can sue the subcontractor for breach of contract; and
- The claimant can sue the surety on the Miller Act Bond posted by the direct contractor.
However, please note:
a. The claimant must serve a 90 day notice on the direct contractor no later than 90 days after the claimant last furnished work or materials to the project. Fill out the form entitled “Miller Act Notice For Federal Public Works Projects.” (a version of the form is available at porterlaw.com/forms.htm) It is best to send the completed form to the direct contractor by certified or registered mail. The claimant must send it no later than 90 days after the claimant last furnished work or materials to the project. Remember to make a copy of what is sent and save the proof of service by certified or registered mail.
b. The claimant must file suit no later than one year after the date the claimant last furnished work or materials for the project.
D. If the claimant only has a direct contractual relationship with other than the direct contractor or a first tier subcontractor (see diagram):
- The claimant can sue the person with whom they had a contract.
- The claimant generally has no right to make a claim against the Miller Act Payment Bond.
The above information is very brief and general. There may be exceptions. A potential claimant should contact an attorney to obtain further and more detailed information. Please remember that all laws can and do change from time to time and the rules in effect this year may not be in effect next year.
Conclusion As To Miller Act Payment Bond Claims
These instructions and the “Miller Act Notice for Federal Public Works Projects” form are applicable to federal construction projects in California. Where complications arise or a potential claimant feels they may not receive payment for work performed or materials supplied, the claimant must contact an attorney immediately for assistance. The practice of law has become very specialized. It is therefore recommended that claimants do not consult with an attorney who is a “general practitioner”, but instead consult with an attorney who specializes in construction law.
Article written by William L. Porter, Esq. and revised in 2014. Mr. Porter is a principal in The Porter Law Group, Inc. in Sacramento, California. He can be reached by phone at (916) 381-7868.
