Business Law Articles
Written By: David M. Henry, Esq.
Kohner, Mann & Kailas, S.C.
While you can’t file a construction lien against a federal construction job, you can still recover your construction receivable by perfecting and enforcing a payment bond claim. If you furnish labor or materials for a construction project owned by the federal government, federal law prevents you from filing a mechanics’ lien against the jobsite property. However, generally speaking, most federal construction projects must be covered by a payment bond furnished by the prime contractor, and you may instead be able to assert a claim against that payment bond.
The Federal Miller Act, 40 U.S.C. Sections 3131-3134, governs claims against payment bonds issued in connection with federal construction projects. A payment bond is issued by a surety company, which undertakes to pay the claims of qualifying parties who furnish labor or materials to the federal construction job, subject to the provisions of the Miller Act and the terms and conditions of the payment bond itself.
Under the Miller Act, there are two classes of claimants who are eligible to assert a claim against the payment bond: (1) those who furnish labor or materials to the prime contractor for the project, and (2) those who furnish labor or materials to a first-tier subcontractor for the project (that is, to a subcontractor who has a contract with the prime contractor). A party who furnishes labor or materials to a second-tier or lower subcontractor is not eligible to assert a claim against the payment bond. Neither is a party who furnishes materials to another material supplier.
If your contract is directly with the prime contractor, you are not required to furnish any written notices that you are asserting a claim against the payment bond. You need only file suit to enforce your payment bond claim within one year of the last date that you furnished labor or materials for the job for which a balance remains due. In practice, however, it is generally advisable to obtain a copy of the payment bond and give written notice of nonpayment and written notice of your payment bond claim to the owner, the prime contractor, and the surety company well before the one-year suit deadline. This may get you paid without the need to file suit to enforce your bond claim.
If your contract is with a first-tier subcontractor, then there are further requirements, in addition to filing suit within one year. Then, you must also furnish (1) a written notice of nonpayment, and (2) a written notice of your demand for payment and your payment bond claim to the prime contractor within 90 days of the last date that you furnished labor or materials to the job for which a balance remains due. This notice must be actually received by the prime contractor by this deadline, not just mailed by the deadline. The notice must be sent by registered mail with a return receipt requested. Although not required by the Federal Miller Act, the notice should also be furnished within the same time frame to the owner, the surety company, and the claimant’s customer on the job (the first-tier subcontractor).
In some cases, it is difficult to determine the last date a claimant furnished labor or materials for the federal construction job. The court cases decided under the Federal Miller Act, however, do provide some guidance on the issue. For example, the courts have made it clear that the 90-day notice deadline and the one-year suit filing deadline begin to run when the last of the services were furnished or the last of the materials were provided as part of the original contract, and these deadlines do not restart if you subsequently furnish labor or materials to correct defects or make repairs on items previously furnished for the federal job. These deadlines also do not restart if you furnish punch list or warranty work or materials for the job.
The Miller Act requires that a lawsuit to enforce a payment bond claim must be brought in the federal district court for the district in which the job was located.
Not all federal jobs are bonded. The general requirement is that federal jobs in excess of $100,000 are to be bonded. However, the Miller Act specifically exempts certain jobs, including, for example, certain Army, Navy, Air Force and transportation jobs. Thus, it is crucial for potential bond claimants to find out whether any federal job that they are subcontracting for is (a) covered by a payment bond, and (b) that they would qualify as a party eligible to assert a claim against the bond
There are many complex and technical issues that can arise under the Federal Miller Act. Anyone contemplating reliance on such a bond, or estimating the risk posed by entering into a contract as a subcontractor on a federal job, is strongly advised to consult with an attorney with a record of enforcing such claims before committing to be a subcontractor or supplier on the job. The key is to find out at the inception of the job if the prime contractor furnished a payment bond for the job and whether you can claim against it. The Miller Act gives eligible bond claimants a statutory right to a copy of the bond. Then, the key is to ensure that you are positioned such that you have available the information and documentation necessary to timely satisfy applicable notice and suit filing deadlines, which trip up many who would otherwise have been able to assert a Miller Act payment bond claim. Taking these steps from the outset will significantly enhance your prospects for getting paid on the federal job.
If you want to enhance your ability to recover against a distressed federal contractor, a Miller Act claim is an excellent remedy. If you would like more information on construction lien and payment bond claims to secure your construction receivables, you can contact David M. Henry, Esq. of Kohner, Mann & Kailas, S.C., Milwaukee, WI, by telephone at 414.255.3659 or by e-mail at firstname.lastname@example.org