Tag Archives: Miller Act

Show Me the Money: Getting Paid on Federal Public Construction Projects

By on July 18, 2016

It is imperative that subcontractors and material suppliers seeking payment for completed work on federal-level public construction projects be aware of the paradigm of laws and policies that exist governing such matters. To start, The Miller Act, codified as 40 U.S.C. §§ 3131-3134, exists to provide subcontractors on federal-level public construction projects a means by which to secure their right to payment in an analogous manner to how M.G.L. c. 149, § 29 operates to provide Massachusetts subcontractors and material suppliers on state-level public construction projects a means by which to secure the same. Specifically, the Miller Act requires general contractors on federal projects to provide performance bonds and payment bonds to the awarding authority where the prime contract exceeds $100,000. (for a comprehensive overview of subcontractor Miller Act rights see, “Federal Subcontractors – Understanding the Basics of Your Rights Under the Miller Act.”). 

While the legal framework behind federal-level public construction projects and state-level public construction projects often operate in tandem it is imperative to note that Federal law and Massachusetts law treat the enforceability of “pay-if-paid” and “pay-when-paid” subcontract clauses somewhat differently. This distinction is one that subcontractors need be wary of when entering into public construction contracts.

“Pay-if-paid” clauses create a condition precedent to subcontractor payment. That is, a subcontractor has no right to payment for completed work until the general contractor has received payment from the owner. “Pay-when-paid” clauses create no such condition precedent to subcontractor payment. Rather, the general contractor has a ‘reasonable time’ to obtain payment from the project owner, but in the event the owner does not pay the general contractor within the ‘reasonable time’ the subcontractor still has the right to seek payment from the general contractor. Ambiguous contract language often complicates the subtle, yet substantial, differences between the two types of clauses leading to high stakes contract interpretation disputes.

In 2004, Massachusetts did away with the fraught distinction between “pay-if-paid” and “pay-when-paid” clauses on state-level public construction projects. See, Framingham Heavy Equip. Co., Inc. v. John T. Callahan & Sons, Inc., 807 N.E.2d 851, 855 (Mass. App. 2004). Thus with regard to Massachusetts state-level public construction projects “pay-if-paid” causes have been effectively eliminated in favor of “paid-when-paid” clauses.” 

Federal-level public construction projects, on the other hand, have not completely eliminated the distinction between “pay-if-paid” and “pay-when-paid” contract clauses. Thus, on federal-level public construction projects “pay-if-paid” language included in a subcontract could complicate subcontractor recovery in relation to the principal contractor. The limited amount of Federal case law on the issue, however, leads to the inference that Federal Courts disfavor allowing “pay-if-paid” clauses to operate in the federal-level public construction context, particularly on Miller Act projects.

According to Federal Courts in both the First and Ninth Circuits, “the Miller Act is ‘highly remedial in nature,’ and should be construed and applied liberally to ‘effectuate the Congressional intent to protect those whose labor and materials go into public projects.’” United States ex rel. J.H. Lynch & Sons v. Travellers Cas. & Surety Co. of Am., 783 F. Supp. 2d 294, 296 (D.R.I. 2011) quoting, United States ex rel Walton Tech., Inc. v. Weststar Eng’g, Inc., 290 F.3d 1199, 1209 (9th Cir. 2002). Furthermore, according to the reasoning of the Ninth Circuit, because the Miller Act itself conditions payment, not on whether prime contractor is paid, but rather, whether the subcontractor has performed AND whether the statutory amount of time to bring a Miller Act claim has passed, it then follows that the terms of the Miller Act trump subcontract “pay-if-paid” language absent a “clear and explicit” waiver on the part of the subcontractor. Of particular note, the Ninth Circuit, specifically states, and the District Court of Rhode Island, located in the First Circuit, specifically quotes, the following language; “A subcontractor that has performed as agreed need not await the Government’s payment of the contractor before initiating an action under the Miller Act against the contractor or the surety.” United States ex rel Walton Tech., Inc. v. Weststar Eng’g, Inc., (9th Cir. 2002); United States ex rel. J.H. Lynch & Sons v. Travellers Cas. & Surety Co. of Am., (D.R.I. 2011).

The law is far from settled regarding the enforceability and distinction between “pay-if-paid” and “pay-when-paid” subcontract clauses on federal-level public construction projects. While there is some guidance on this issue in the context of the Miller Act, the distinction between the two clauses may still prove thorny for subcontractors seeking to enforce their right to payment.  Thus, subcontractors should keep an eye towards the development of the law in this area as it is likely that more distinct legal trends will begin to emerge. If you have any questions about payment issues on public construction projects you should contact a Massachusetts construction lawyer.

Federal Subcontractors – Understanding the Basics of Your Rights Under the Miller Act.

By on May 31, 2016

By Jennifer Lynn

     Subcontractors commonly inquire as to what they can do to ensure they receive payment on a project. For federally-owned construction projects, subcontractors can look to the Miller Act as a source of security. The Miller Act, codified as 40 U.S.C. §§ 3131-3134, requires general contractors on federal projects to provide performance bonds and payment bonds to the awarding authority where the prime contract exceeds $100,000. The general contractor’s payment bond must list a “satisfactory” surety and cover the total amount of prime contract. 40 U.S.C. § 3131(b)(2).

     The primary purpose behind the Miller Act is to provide security to subcontractors. Because federal projects are immune from lien claims, the Miller Act provides an alternative to a traditional lien, which instead calls for subcontractors to file claims against the general contractor and its surety under the payment bond. See U.S. ex rel. Metric Electric, Inc. v. Enviroserve, Inc., 301 F.Supp.2d 56, 66 (D.Mass. 2003). As with any claim for payment, the subcontractor must establish that it is owed payment in order to establish an enforceable claim under the bond.  In addition to establishing a basic right to payment, subcontractors must meet other specific requirements to secure the benefits of the Act.

Who is Protected Under Miller Act Payment Bonds?

     The Miller Act requires payment bonds to secure the claims of “all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3131(b)(2). “All persons,” for purposes of the Miller Act, applies to (1) first-tier subcontractors, which are contractors who directly contract with the general contractor; (2) second-tier subcontractors, those contractors with a subcontract with a first-tier subcontractor; (3) first-tier suppliers, which are suppliers who contract with the general contractor; and (4) second-tier suppliers that have a contract with a first-tier subcontractor but not a first-tier supplier. See U.S. ex rel. Water Works Supply Corp. v. George Hyman Constr. Co., 131 F.3d 28, 31 (1st Cir. 1997).

     Third-tier and more remote subcontractors and suppliers cannot recover under the Miller Act. Subcontractors and suppliers too remote to file a claim under the Miller Act can file ordinary claims for nonpayment for breach of contract or quasi-contract.  The Miller Act does not alter contractors’ rights in connection with claims for nonpayment, but rather provides security for payment to the “persons” covered by the Act.

What Must a Subcontractor Do to Obtain Security Under the Miller Act?

     Much like comparable statutes for state-owned construction projects, subcontractors must wait the requisite time to file a Miller Act bond claim and may need to provide initial notice to the general contractor. All subcontractors must wait 90 days after they last furnished labor or material to the project[1] before they may file a claim under a Miller Act payment bond. 40 U.S.C. § 3113(b)(2). The wait period serves the purpose of setting aside a reasonable amount of time for the subcontractor to receive payment for completed work. Bond claims filed before expiration of the notice period will be considered premature.

     Second-tier contractors must comply with the 90 day wait period and must also provide written notice of its claim to the general contractor. The notice must be in writing; it must be received by the general contractor within the first 90 days after the second-tier subcontractor last furnished labor or material on the project; it must state “with substantial accuracy” the amount claimed unpaid and due and the name of the party to whom the material or labor was supplied or performed (i.e. the first-tier subcontractor); and it must be delivered by a method that provides verification of delivery (i.e. certified or registered mail) or served by a U.S. marshal. 40 U.S.C. § 3133(b)(2).  The required notice must specifically demand payment from the general contractor.  See U.S. ex rel. John D. Ahern Co., Inc. v. J.F. White Contracting Co., 649 F.2d 29, 31-32 (1st Cir. 1981). The notice requirement is strictly construed, and failure to fully comply will bar the subcontractor from raising a recoverable bond claim.

     Subcontractors must file their claim on the bond within 1 year after the day of last furnishing labor or material on the project, 40 U.S.C. § 3133(b)(4), in the federal court in the district in which the project is located. 40 U.S.C. § 3133(b)(3)(B). Failure to file within the 1 year period will result in an absolute bar against the subcontractor’s bond claim. While a claim will be filed “in the name of the United States for the use of the person bringing the action,” 40 U.S.C. § 3133(b)(3)(A), the claim is a private one brought by the subcontractor and the federal government is explicitly exempt from liability to the subcontractor.

     The above summary covers the general parameters for subcontractors to file a bond claim on federally-owned public construction projects. Because each project presents a different set of facts, the process and outcome to recover for nonpayment and filing under the Miller Act will vary. If you are uncertain regarding your company’s ability to recover payment for its work on a federal construction project, or if your company has complied with the regulations or process governing Miller Act claims, you should contact a Massachusetts construction attorney to achieve the best possible outcome.

[1] For more information about “last date of work” and how it is calculated, read Payment Bonds on Federal Construction Projects – Last Date of Work.


Payment Bonds on Federal Construction Projects – Last Date of Work

By on June 3, 2015

When did you last work, for the purposes of filing a timely payment bond claim on a federal public construction project?

The Miller Act, which governs federal construction project payment bond claims, provides that suit be brought within one-year from the day on “which the last of the labor was performed or material was supplied by the person bringing the action.” 40 U.S.C. § 3133(b)(4). The same date is used to determine the 90-day notice requirement for sub-subcontractors and material suppliers. What constitutes labor or material supplied in the context of contract work is often not clear; work performed prior to a subcontractor’s substantial completion clearly counts. Warranty work that involves coming back to repair defects in the subcontractor’s own work generally does not. However, “punch list” items may sometimes include both incomplete contract work (which generally counts) and defective work performed that requires correction (which generally does not count). Sometimes the distinction is not entirely clear, and courts struggle to find a bright line rule on this point.

Massachusetts Federal Court Standard for “Last Date of Work” on a Miller Act Claim

The Massachusetts’ standard is that the one-year statute of limitations will begin to run on the last date on which materials or labor were supplied on the project for the purpose of completing subcontract work. U.S. for Use & Benefit of Lab. Furniture Co. v. Reliance Ins. Co., 274 F.Supp. 377, 379-80 (D.Mass. 1967) (emphasis added). Corrective work, which is performed for the purpose of making repairs following the inspection of the project, will not extend the statutory deadlines. D.D.S. Industries v. C.T.S., Inc., 2012 WL 2178962, *1 (Mass.Super. June 13, 2012) (making clear that the date of substantial completion is not the relevant date).

For material suppliers, the “date of last work” is the day of last supplying material on the project. The First Circuit, which encompasses Massachusetts federal courts, ruled that where a supplier provides material on a single, federally-owned project, all material supplied will be covered by that project bond.  This is true regardless of whether the material supplier and general contractor treat each delivery of project material as part of one contract or under distinct and separate contracts. G.E. Supply v. C & G Enterprises, Inc., 212 F.3d 14, 18 (1st Cir. 2000).

Massachusetts considers punch list work provided as a requirement for completion of the project to be contract work; whereas punch list work provided as a correction, repair, or as clean up, is not contract work and will not prevent the statutory deadlines from running. U.S. for Use & Benefit of Lab. Furniture Co. citing U.S. for Use and Benefit of Austin v. Western Elec. Co., 337 F.2d 568, 572-75 (9th Cir. 1964). The value of materials supplied is not relevant in determining whether work was provided to complete the contract or as corrective work. Labor and materials supplied which are ultimately not used in the project still count as “work,” for statute of limitation purposes, so long as it is toward completion of the contract work. In U.S. for Use & Benefit of Lab. Furniture Co., the court considered replacement of plastic identification buttons on faucets and nozzles in a physics laboratory “corrective” punch-list work and could not extend statutory deadlines. The court weighed the following key factors in reaching this conclusion: (1) the buttons were supplied as replacements for buttons previously provided during the original performance of the subcontract; (2)  seven months passed between when the subcontractor substantially completed work and the installation of replacement buttons; (3) four months elapsed after termination of the subcontractors’ contract until the button replacement; and (4) a demand letter sent to the subcontractor’s surety initiated the replacement work. 

An Alternative Standard for Determining the “Last Date of Work” on a Miller Act Claim

The Fifth Circuit Court of Appeals created a test, which is not the law in Massachusetts at this time, to determine whether labor and material will be considered “contract work” or “corrective work.” The test involves weighing the following factors: (1) the value of the materials, (2) the original contract specifications, (3) the unexpected nature of the work, and (4) the importance of the materials to the operation of the system in which they are used. U.S. for Use of Georgia Elec. Supply Co., Inc. v. U.S. Fidelity & Guaranty Co., 656 F.2d 993, 996 (5th Cir. 1981).[1]

This standard was adopted by the Eleventh Circuit Court of Appeals in Southern Steel Co, Inc. v. United Pacific Ins. Co., 935 F.2d 1201 (11th Cir. 1991). Based on the four above factors, the Court held that work to replace defective locks in a county jail were arguably “contract work” as repair or replacement of defective locks was called for under the original contract; replacement of the locks necessary due to circumstances outside the subcontractor’s control, and were therefore unexpected; that functional locks were deemed very important to operating the jail; and, given the circumstances of the case, the unclear value of the work was immaterial.

Additionally, the Fifth Circuit’s test is applied in Miller Act claims before the District Court for New Jersey. In U.S. v. Fidelity & Deposit Co. of Maryland, the court held that operation and maintenance manuals, provided approximately one year after the other subcontract material and labor, were “contract work” within the meaning of the Miller Act, and therefore tolled the statute of limitations until the date upon which they were provided. 999 F.Supp. 734, 747 (D. NJ 1998). In applying the test from the Fifth Circuit, the court held that the value of the manuals ($5,000) was substantial, regardless of the overall subcontract value ($700,000); that contract specifications specifically provided for the provision of the manuals; that an item containing instructions for repairing equipment does not make that item itself a repair item; and that the manuals were sufficiently important to operating the equipment provided under the contract.

What This Means for Subcontractors and Material Suppliers on Federal Construction Projects in Massachusetts

While the Fifth Circuit’s standard is similar to the standard followed in Massachusetts, it arguably applies a more predictable standard for determining whether the work is “contract work.” The benefit of the four-factor test developed by the Fifth Circuit is that it allows courts to assess standard categories for the work and allows flexibility to value more persuasive factors at a higher value, as opposed to missing or unclear factors. The Fifth Circuit’s test could be adopted by the Massachusetts federal court, as there is currently some ambiguity about what constitutes a date last worked on federal projects remains.

The above information is only meant to provide a general summary regarding rights and obligations for recovering under payment bonds provided on federal public construction projects. Because each project presents a different set of facts, the process and outcome of attempting to recover under a project payment bond will vary depending on the circumstances. If you are uncertain about anything regarding your company’s ability to recover under a payment bond, you should contact Massachusetts construction attorney to ensure the necessary steps are taken to achieve the best possible outcome.

[1] In U.S. for Use of Georgia Elec. Supply Co., Inc. v. U.S. Fidelity & Guaranty Co. the Fifth Circuit Court of Appeals interpreted Georgia state law, the language of which mirrors the language of the Miller Act.