The Miller Act: Bonds on Federal Projects

When you work on a federal construction project, there is one tool you lose that you'd rely on anywhere else: you cannot file a mechanic's lien. You can't put a lien on a courthouse, a VA hospital, or a military base, because private parties cannot encumber government property. So if the prime contractor takes the owner's money and doesn't pay its subcontractors and suppliers, how do those people get paid? Congress answered that question in 1935 with the Miller Act (40 U.S.C. §§ 3131–3134), and understanding it is essential before you ever set foot on a federal job — whether you're the prime carrying the bonds or a sub relying on them.

What the Miller Act actually requires

On a federal construction contract over $150,000, the prime contractor must deliver two separate bonds to the government before starting work:

• A performance bond. This guarantees the contractor will complete the project according to the plans, specs, and contract. If the prime defaults, the surety must either step in and finish the work or pay the government its damages — up to the bond amount (often 100% of the contract value).
• A payment bond. This guarantees the prime will pay its subcontractors, laborers, and material suppliers. Because those parties can't lien federal property, this bond is their substitute for lien rights — it's the pot of money they make a claim against if they aren't paid.

For contracts between $35,000 and $150,000, the contracting officer doesn't have to require a full payment bond but must require alternative payment protection (for example, an irrevocable letter of credit).

Who the payment bond actually protects

This is where people lose money by assuming. The payment bond protects:

• First-tier claimants — those with a direct contract with the prime (your subs and suppliers).
• Second-tier claimants — those with a direct contract with a first-tier subcontractor (a sub's sub or supplier).

It generally does not reach parties further down the chain (a supplier to a second-tier sub). If you're extending credit on a federal job, you need to know which tier you are, because it determines whether the bond protects you at all and what you must do to claim.

The deadlines that make or break a claim

A valid claim is worthless if you miss the clock, and the Miller Act's clocks are strict:

• Second-tier claimants must give written notice to the prime contractor within 90 days of the last day they furnished labor or materials. Miss that 90-day notice and the second-tier remedy is gone.
• Every claimant must file suit on the payment bond within one year of their last day of work — and no earlier than 90 days after.
• Suit is filed in the U.S. District Court for the district where the project is located.

These dates turn on your "last furnishing" date, so documenting exactly when you last delivered material or performed work isn't paperwork for its own sake — it's the foundation of your right to get paid.

Going Deeper (Intermediate)

The Miller Act is federal, but its logic is everywhere. Because states can't be liened either, almost every state passed a "Little Miller Act" requiring performance and payment bonds on state and local public work — with similar (but not identical) notice and suit deadlines, so you must check the specific state's statute. Bond amounts are typically set at 100% of the contract, and the bond cost (roughly 0.5%–3% of the contract, driven by the prime's credit) is a real line item that belongs in the bid.

Remember what a bond is: not insurance, but a three-party guarantee (principal, obligee, surety). The prime signs a General Indemnity Agreement, so if the surety pays a claim, the surety recovers from the prime. That's why a contractor needs genuine bonding capacity — the surety's "three Cs" of capital, capacity, and character — just to be allowed to bid federal work. For a newer or smaller firm, the inability to get bonded is often the single biggest barrier to federal contracting.

Advanced / Pro-Level

At the strategic level, the Miller Act shapes how you build and protect a job:

• Transfer risk downward. A prime can require its own subcontractors to furnish bonds back to the prime on large or risky scopes — so a sub's failure (and its unpaid lower-tier suppliers) becomes the sub's surety's problem, not yours.
• Use the bond as leverage. An unpaid sub who properly notices a bond claim gets the prime's and the surety's attention fast — a paid surety claim hurts the prime's bonding relationship, so the threat itself often unlocks payment.
• Protect your own rights as a sub. Track your last-furnishing date, calendar the 90-day and one-year deadlines, send the written notice certified mail, and make the notice state the amount and who you supplied. Sloppy notice content can defeat an otherwise valid claim.
• Coordinate with prompt-payment laws. Federal and state prompt-payment acts add interest and deadlines for payment; combined with the bond, they're your collection toolkit on public work.

How It Affects Your Decisions

Everything above turns into concrete choices:

• Should you even pursue federal work? If you can't get bonded for the contract size, the answer is not yet — and your first move is to build working capital and a clean WIP so your surety will raise your single-job and aggregate limits.
• How do you price the job? You add the bond premium to the bid, and you decide whether to require sub bonds (which cost the subs money but reduce your risk).
• How do you manage credit and collections? Because you can't lien, you manage accounts receivable around the bond: track last-furnishing dates, don't let the 90-day window lapse, and be ready to sue within the year. Knowing the bond is there changes how much credit you extend and how hard you push on slow payment.
• As a sub: before you sign up for a federal job with a prime you don't know well, recognize that the payment bond is your safety net instead of a lien — and that net only works if you protect your notice and suit deadlines.

Practice Challenge

A second-tier supplier on a federal project last delivered materials 100 days ago, hasn't been paid, and never sent any notice to the prime. Can it still recover on the Miller Act payment bond? (Answer: almost certainly not on the second-tier remedy — a second-tier claimant must give the prime written notice within 90 days of last furnishing, and 100 days with no notice blows that deadline. The lesson: a valid debt plus a missed deadline equals no recovery, so track your last-furnishing date and notice promptly. It should still consult counsel about any direct-contract or state-law remedies.)

Takeaway: On federal work you can't lien, so the Miller Act's payment and performance bonds are the safety net — protect your rights with the 90-day notice and one-year suit deadlines, and as a prime, remember you need real bonding capacity just to bid.

Educational overview — not legal advice. Federal procurement rules (the FAR, Miller Act, Davis-Bacon, and Buy American / BABA) are detailed and change over time; verify the current requirements for your specific contract and consult a construction attorney.