The Miller Act: The Costs and Requirements [Full Guide]
While there are various legislations that create the framework for the work of contractors, undoubtedly the Miller Act is among the essential ones. It came into force in 1935 and ever since it has served as a protection mechanism in the construction industry.
Under the Miller Act, contractors have to present a specific form of security – contract bonds, when working on federal construction projects. Their purpose is to provide extra guarantees for subcontractors and suppliers with whom the main project contractors work.
As the Act is one of foundational legislations for contractors, it’s crucial to know its mechanisms and requirements, as well as the costs that they incur. The present guide makes this overview, so you’re well prepared to meet the legal criteria.
The Basics About the Miller Act
The Miller Act is currently applied under the Federal Acquisition Regulations (FAR).
It aims to protect subcontractors and suppliers who work with contractors on federal projects. The threshold for projects is above $150,000. There are specific rules for projects between $30,000 and $150,000 as well. The type of projects covered include construction, repairs and changes to public buildings and venues.
Through using security mechanisms, the Act ensures that the main contractors on such projects will make all due payments to subcontractors and suppliers. It also guarantees that the interests of the federal bodies that order the projects will be protected as well.
The Required Contract Bonds
The Miller Act achieves its goals through setting a requirement to post payment and performance bonds. Both of these are types of contract bonds – surety bonds that are needed in the construction industry and have to be supplied by contractors.
Construction companies that want to bid on federal projects above $150,000 need to obtain both types of bonds. Otherwise they cannot participate in such projects.
The goal of performance bonds is to secure the timely and high quality completion of the project. They safeguard the interests of the project owner, which in this case is a body of the federal government. The typical amount of the required performance bond is the contract amount, though this may vary.
Payment bonds, on the other hand, protect subcontractors and suppliers, so they focus on labor and materials. They guarantee that the main contractor who has signed an agreement with the federal government will forward all due payments to its partners down the line. Payment bonds cover first-tier partners, and in some cases, may also include second-tier subcontractors and suppliers who work for the first-tier ones. The third tier is not eligible for coverage. The required amount typically is 100% of the contract amount, as for performance bonds.
The cost of obtaining performance and payment bonds depends on the exact bond amount that you have to provide for a project, as well as the strength of your personal and business finances. You have to pay a small percentage of the required bond amount, which is called the premium. If your overall financial profile is strong, the typical rates are between 1% and 4%.
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The Contract Bond Claims Under the Miller Act
Whether you’re a primary contractor or a subcontractor or supplier for such a contractor, it’s important to know your duties and rights under the Miller Act. Having the necessary knowledge can, on one hand, protect you from claims, or, on the other hand, help you bring a rightful claim if you have suffered losses.
The contract bonds that are posted in relation to a federal project serve as a protection mechanism. The way they perform that is through the bond claim process. If the main contractor on a federal project does not follow their contractual obligations, either towards the project owner or towards subcontractors or suppliers, the harmed parties can make a claim against the contract bond.
In the case of payment bonds, first- and second-tier subcontractors and suppliers can bring a claim up to 90 days after the delivery of their work or materials. The claim notice is delivered to the main contractor. Then, their surety takes on the case and examines it. The claimant has to provide a sworn claim form. The surety then decides whether to pay the claim or reject it. If the claim is rejected, the claimant can bring the case to the court, filing a lawsuit for enforcing the Miller Act.
The claim process for performance bonds is slightly different. Then usually the surety has to take over the successful completion of the project, as the main contractor cannot execute it. There are two typical options, which are tender and takeover. In both cases, the project’s completion is guaranteed.
Do you have further questions about the contract bonds that you need under the Miller Act? You can contact us at tel:877.514.5146.
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