Legal Rights and Deadlines to Know if Your Company Is Owed Money by a Prime Contractor for a Government Construction Project

By Attorneys Michael Brown and Vonda Wolcott

Introduction

If significant payment is owed to your company in relation to a Federal or State construction project— namely, if the prime contractor or one of its subcontractors failed to pay your company money it’s owed for labor or materials it provided for the project— please know your company may have strong legal rights.

However, those potential legal rights are time-sensitive, and might require providing timely notice to the prime contractor prior to a legal deadline.

In short, if your company has been underpaid in relation to a government construction contract, there are rights and a process that are important to know about. Below, we (the attorney-authors) discuss what that process involves, and what needs to be done at the proper times, before deadlines elapse, for your company to seek and obtain payment.

Legal Requirement that High-Value Government Contracts Involve Bonds and Surety

If a government construction contract has a value above a legally-defined amount, i.e., above $100,000 for a Federal construction contract, then the prime contractor is required by law to have bonds (from a surety) in place.

This arrangement: (a) provides an added source of potential payment, i.e., the surety, and (b) provides legal rights to given companies, i.e., subcontractors or sub- subcontractors, that are unpaid for services or materials they provided for that government project.

In the attorney-authors’ experience representing contractors and subcontractors across the U.S., we have seen numerous situations where companies were not aware of bond and surety laws, and they did not take advantage of the effective methods those laws provide to get promptly paid.

Below, we discuss bond and surety laws and rights relating to Federal government contracts, and then discuss laws and rights relating to State government contracts.

Federal Construction Projects (Miller Act at 40 U.S.C. § 3131 et cet.)

If your company was not paid for work or materials it provided for a Federal construction contract, and if that government contract is worth above $100,000, then Federal law—specifically, the Miller Act— requires the involvement of bonds and a surety.

To elaborate, the Miller Act, at 40 U.S.C. § 3131, has bond requirements applicable to Federal construction projects worth over $100,000, for which the primary contractor is required to get two types of bonds from a surety: (1) a performance bond that protects the Federal government in the event the project is not completed by the prime contractor; and (2) a payment bond for the protection of all persons/companies supplying labor and material, including subcontractors and sub-subcontractors which provided work and/or materials and were not paid.

In most instances, the amount of the payment bond must equal the total amount payable by the terms of the contract.

If your company is a subcontractor that contracted directly with the prime contractor to a Federal construction contract, there are subcontractors’ rights under the Miller Act at 40 U.S.C. § 3133(b)(1). Namely, if your company is a subcontractor and has been underpaid for over 90 days after materials/work was delivered/finished, your company has the right to bring a civil action (Federal lawsuit) against the prime contractor and surety, on the payment bond, to recover payment of the unpaid amount.

The legal deadline (statute of limitations) for such a lawsuit is one year after the day on which the last of the labor was performed or material was supplied by your company as a subcontractor.

If your company is a sub-subcontractor, i.e., if it is contracted to a subcontractor for a Federal construction project, there are sub-subcontractors’ rights under the Miller Act at 40 U.S.C. § 3133(b)(2). Namely, a sub-subcontractor that has been underpaid for over 90 days after materials/work was delivered/finished, like a subcontractor, has a right to bring a civil action (Federal lawsuit) seeking payment from the prime contractor and surety.

A sub-subcontractor, like a subcontractor, has a legal deadline of one year, marked from the last date of performance, to file a Federal lawsuit.

Also, a sub-subcontractor has additional time-sensitive obligations under the Miller Act: (1) it must provide a written notice to the prime contractor within 90 days of the day the last labor or material was performed or supplied; (2) the notice must contain certain information, i.e., it should state with substantial accuracy the unpaid amount claimed and the name of the party to whom the material/labor was supplied; (3) the notice must be delivered, by the 90-day deadline, to the prime contractor at any place it maintains an office or conducts business or at the contractor’s residence; and (4) the notice must be delivered via a means (i.e.,via certified mail or process server-delivery) that provides written, third-party verification of delivery.

In summary, subcontractors and sub-subcontractors for Federal construction projects should be mindful, in the event they are unpaid for work or materials they provided, that they could assert legal rights against the prime contractor and surety to obtain payment, provided that they exercise those rights in a timely fashion. Namely, subcontractors and sub-subcontractors should be aware of the one-year deadline (marked from the last date work/materials were provided) they have for filing a Federal lawsuit, and sub-subcontractors pursuing payment should know they additionally have a 90-day deadline and written notice requirements as referenced above.

Last but not least, if your company is a subcontractor or sub-subcontractor owed money for a Federal construction project, please know that your company does not necessarily need to file a Federal lawsuit.?

For example, attorneys can often help companies effectively recover money from opposing parties or sureties by filing a bond claim with the surety and/or by instigating a voluntary negotiation process and settlement that can occur before a lawsuit needs to be filed. An attorney knowledgeable about the Miller Act can help a company to be informed of its rights and obligations, and to take timely actions (e.g., providing a timely notice with the right content to the prime contractor if/when necessary) that are necessary to achieve a successful settlement and/or litigation result.

State Government Construction Projects (“Little Miller Act” Per States’ Laws)

If your company was not paid for work or materials it provided for a State government construction contract, and if that government contract is worth six-figures or more, then it is very likely that that State has a law similar to the Miller Act (commonly called States’ “Little Miller Acts”) that has bond and surety requirements.

As is indicated by this linked Wikipedia page, which tracks various States’ “Little Miller Acts”, all States in the U.S. have a “Little Miller Act”. Like the Federal Miller Act, the States’ “Little Miller Acts” (a) require that prime contractors must secure surety bonds and (b) provide rights and means of payment-collection for subcontractors and sub-subcontractors underpaid for materials or work they provided for public (State-) construction projects.

Example 1: Maryland’s “Little Miller Act”

One example of a State's "Little Miller Act" is Maryland's statute at MD State Finance and Procurement Code § 17-103(a), which requires prime contractors— for government (Maryland-) construction projects exceeding $100,000— to obtain performance and payment bonds from a surety.

Comparable to the Miller Act requirements above, Maryland’s “Little Miller Act” provides rights to a subcontractor or sub-subcontractor on a public (MD) construction project that has not been paid in full for its labor or materials. See MD State Finance and Procurement Code § 17-108(a).

Namely, subcontractors and sub-subcontractors for Maryland public construction projects that have been underpaid for over 90 days after their materials/work was delivered/finished have a right to file a civil lawsuit in State (MD) court against the prime contractor and surety seeking payment.

Maryland’s Little Miller Act, like the Federal Miller Act, (1) provides for a one-year deadline for underpaid subcontractors or sub-subcontractors to file a lawsuit, with the deadline marked from the last date work or materials were provided; and (2) requires sub-subcontractors to issue written notice to the primary contractor within a 90-day deadline period, per MD State Finance and Procurement Code § 17-108(b).

Example 2: Wisconsin’s “Little Miller Act”

As another example, Wisconsin has a Little Miller Act, at Wis. Stats. §§ 779.14 - 779.15.

Performance and payment bonds are required, from a surety, for public (WI) construction contracts worth above $369,000; such contracts worth between $148,000 and $369,000 must generally have these bonds as well, unless the WI Department of Administration allows the prime contractor to substitute a different payment assurance. See Wis. Stat. 779.14(1m)(c), (1m)(e).

Comparable to the Federal Miller Act requirements above, a subcontractor or sub-subcontractor for a public (WI) construction project that has not been paid in full for its labor or materials may file lawsuit in State (WI) court, and has a filing deadline of one year after the completion of work, per Wis. Stat. § 779.14(2)(a).

However, certain sub-subcontractors (depending on circumstances) have a 60-day written notice requirement, marked from the date labor was “first performed”, according to Wis. Stat. 779.14(2)(am).

As should be evident from the Wisconsin- and Maryland- law examples, the “Little Miller Acts” from State to State can be very similar to the Miller Act in major respects, but can also differ in certain ways, depending on the State and the circumstances.

Summary

For reasons described, if significant payment is owed to your company in relation to it having been a subcontractor or sub-subcontractor for a Federal or State construction project, your company may have strong legal rights. But it is important your company become familiar with applicable laws, processes and deadlines in order to take appropriate actions to recover payment.

An attorney knowledgeable about legal rights under the Miller Act and Little Miller Act could potentially be of assistance in helping you navigate your situation. Many of us lawyers offer free initial consultations for such matters. (And, as this linked article describes, contingency fees or other reduced out-of-pocket fee arrangements could potentially be an option if your company retains an attorney to recover significant money owed to it).

We hope the information in this article is helpful to your company in navigating any current or future payment disputes that relate to government construction projects.