Miller Time: Bonds, Sovereign Immunity, and Public Projects

Getting paid can sometimes be the hardest part of the job for a subcontractor. Typically, a subcontractor can claim a lien on the property where the work was performed or sue the prime contractor for breach of contract. However, where the “owner” is the government, getting paid can be a little trickier. Public construction projects consist of projects where the services and materials provided are used to make improvements to government owned property.

The government, whether it be the federal, state, or municipal government, has “sovereign immunity.” Sovereign immunity essentially means that the government cannot be sued in civil court. It is common, however, for legislatures to enact partial waivers of sovereign immunity by statute. The abiding test for whether the government has sovereign immunity rests in whether the wrongdoing arose in an operational or planning function. Decisions relating to policy making, planning, or judgmental government functions are usually not subject to these waivers — these are planning functions. Conversely, government entities are not immune from liability for their wrongdoing in operational functions, which are usually performed by private entities.

So, what does this mean? You cannot sue the government or put a lien on a government-owned facility in the case of non-payment. However, the Contracts Dispute Act waives government immunity in contract disputes with prime contractors, but not for subcontractors. This severely limits the ways in which subcontractors can enforce payment provisions in their contracts for public projects. There is legislation that can help subcontractors should they encounter payment issues involving government property: The Miller Act.

The Miller Act

The Miller Act is a law that requires every contractor bidding on a federal project to post a performance bond and a payment bond covering all labor and material. This is required on contracts exceeding $100,000 on any building or property in the United States. The performance bond is required to protect the government in the event that the contractor fails to perform its scope of work. The payment bond protects labor, suppliers, and materials. Payment bonds also cover subcontractors and suppliers contracted by subcontractors, called second-tier claimants. In addition to bonds required by The Miller Act, federal acquisition regulations could require additional protection or bonds to contracts between $25,000 and $100,000. It should be noted that since projects under $100,000 may not require a bond, the subcontractor should proceed with caution since they do not have the security of a bond or a lien in the case of non-payment by the prime contractor.

In addition to the federal Miller Act, all states and the District of Columbia have passed “Little Miller Acts,” statutes based upon the federal Miller Act that require prime contractors on state construction projects to post bonds guaranteeing the performance of their contractual duties and the payment to their subcontractors and material suppliers. Like the federal Miller Act, Little Miller Acts require the posting of both performance and payment bonds.

Little Miller payment bonds provide an alternative source of payment to the subcontractors and material suppliers who worked on the job. If the claimant did not have a direct contractual relationship with the prime contractor, the claimant is typically required to give some form of notice to the prime contractor within a specified time after the completion of the work to preserve the right to make a claim against the payment bond. The purpose of this requirement is to give the prime contractor notice that you have been hired by the subcontractor and expect to be paid. Across state lines, the notice requirement and the entitlement to a copy of the bond varies.

In sum, although you cannot lien public property to secure payment for work completed on a public project, there are other methods available. The requirement that prime contractors secure both performance and payment bonds ensures that all parties to the project will be satisfied at the conclusion of the project. It is best practice for any subcontractor working on a public project to become familiar with the requirements under the host state’s Little Miller Act, and to request a copy of the payment bond if possible and timely serve its Notice to Contractor, if required. This is the best way to ensure preservation and enforcement of a bond claim in the event of non-payment.

About the authors: David Keel is an Attorney at Cotney Construction Law who represents clients in construction law. Richard Anderson is an Attorney at Cotney Construction Law with direct experience working in the construction industry. Cotney Construction Law is an advocate for the roofing industry and serves as General Counsel for NRCA and several other roofing associations. For more information, visit www.cotneycl.com.

Authors’ note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

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