Strang Scott partner, Chris Strang, co-authored and article with Brendan Carter from the Associated General Contractors of Massachusetts that was published recently on the cover of the American Bar Association’s “Under Construction” quarterly newsletter. The article details a case where Strang Scott prevailed against the Commonwealth of Massachusetts, successfully arguing that the awarding authority has a duty to ensure the validity of payment bonds provided by general contractors on public construction projects in Massachusetts. The case was a matter of first impression in Massachusetts courts.
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Federal Subcontractors – Understanding the Basics of Your Rights Under the Miller Act.
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 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.
 For more information about “last date of work” and how it is calculated, read Payment Bonds on Federal Construction Projects – Last Date of Work.