How a Miller Act claim can get you paid on a federal project
Thursday, July 07, 2016
To understand the Miller Act, it's important to note why the act was even necessary.
A subcontractor's favored recourse for nonpayment is often a mechanics lien. Mechanics liens allow for a labor or material provider to encumber the property where work was done until they are paid. If not paid, they can then foreclose on the lien and force the sale of the property, and the payment due is taken from the sale price.
While this is an excellent remedy for private works, laborers and material providers cannot encumber government property. The Miller Act was passed to provide another route for these workers and to minimize the government's liability in these projects.
The Miller Act requires that general contractors provide payment and performance bonds for federal projects over $100,000. This provides subcontractors an extra layer of insurance beyond the general contractor. Subcontractors can file claims on these bonds when they are not paid, usually without regard for whether the general contractor itself was paid.
The Miller Act provides no protection for general contractors. First-tier contractors, second-tier subcontractors and first-tier suppliers (those suppliers under contract with the general contractor) are all covered under the act. Suppliers providing materials to first-tier contractors are also within the parameters of the Miller Act.
While third-tier subcontractors and the suppliers not described above are not covered under the act, these parties do have other recourse and can seek traditional contract or quasi-contract remedies.
Procedure, procedure, procedure!
As with all mechanics lien and bond claims, procedure is king when it comes to the Miller Act. Deadlines are taken seriously. Attempts to toll, extend or relate back to Miller Act deadlines have largely fallen on deaf ears.
Depending on how far removed a subcontractor is from the prime contract, a formal notice of claim may be required before a subcontractor can file a bond claim. When a subcontractor is in a direct relationship with the contractor, a notice of claim is not necessary before filing a claim.
For second-tier subcontractors and suppliers to first-tier contractors, a formal notice of claim must be provided within 90 days of the last date labor or materials was provided. For both groups, a Miller Act claim must be filed within one year of the last date labor or materials were provided.
There are a few more procedural obstacles to dodge, though. When filing a claim, a claimant must be sure to file in the district within which the project is located. All subcontractors who file a claim must also provide written notice of their claim to the general contractor.
This notice should be delivered in a way that can verify its receipt — either through certified or registered mail, or served by a U.S. Marshall. Again, procedure is (almost) everything in lien and bond claims, and failure to adhere to the procedural rules will likely end in a barred claim.
Where do the claims fall?
Many of the issues that arise during Miller Act claims come from the relationship of the parties. At times, defining these roles can be confusing. As mentioned above, it is important to know how all parties under these projects are related to understand what provisions apply.
Litigation also arises out of general contractors' attempts to get subcontractors to waive Miller Act rights. Ambiguous contract provisions are interpreted against the party who drafted the contract, so even if a subcontractor is hoodwinked into waiving their rights, a court may step in on their behalf. Unless a waiver of these rights was clear and unequivocal in the contract, it will likely not hold up in court.
Best way to preserve your right to payment
It may sound simple, but the best way to preserve your rights is by paying close attention when drafting your contract. A clearly structured chain of employment is imperative, as how far removed you are from the prime contract determines your rights under the Miller Act. This also affects what types of notices you may be required to provide before filing a claim, and failing to follow these procedures will kill your chances at recovery.
Lastly, paying close attention to your contract can ensure you don't waive any rights under the act. While using confusing language to obtain a waiver of these rights may not typically work for general contractors, it is best to avoid the issue altogether.
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