“MILLER ACT” AND OTHER BOND CLAIMS

In a private construction job situation, typically, the subcontractor or supplier is confronted with an unbonded contract with the owner, or an unbonded subcontract with the general contractor. However, almost all states, including West Virginia, provide mechanic’s lien laws, or trapping or notice statutes, whereby a contractor or supplier may assert a mechanic’s lien, or notice of the same, to secure payment for labor performed or material supplied.

In the public sector, the law does not permit mechanic’s liens to be filed against public property. However, a contractor is not without a remedy on a public construction project, because of the bond requirement on all public construction jobs.

Under West Virginia Code § 38-2-39, often referred to as the “Little Miller Act,” and under its federal counterpart, 40 U.S.C. § 270(a-d), a subcontractor’s, materialmen’s, and second tier subcontractor’s remedy exists. Because of the proscription against mechanic’s liens upon public lands, public construction proceeds with the added protection of a payment, performance bond provided by the general contractor.

Under West Virginia Code § 38-2-39, in the erection, construction, improvement, alteration or repair of any public building or structure, where the general contractor fails to pay a subcontractor or materialman, who has furnished machinery or equipment or labor for the full payment of the full value thereof, any such subcontractor or materialman may lodge a claim against the general contractor’s posted surety performance/payment bond to secure full payment for the full value of equipment, materials, supplies or labor rendered. Attention should be drawn to the fact that West Virginia Code § 38-2-39 does not state, expressly, when the statute of limitations begins to run against a surety bond claimant under this provision.

Under the Miller Act, 40 U.S.C. § 270(b), a subcontractor, and second tier subcontractor, but not any subcontractor or materialman more remote, may claim against the posted surety bond of a general contractor by giving notice to the general contractor of their claim no more than ninety (90) days from the last day of performing work or supplying materials. The notice is required to state with substantial accuracy the amount of the claim. The subcontractor must then file suit within one year of the designated last day on which labor was performed or materials supplied. These deadlines are extremely strict, and failure to adhere to them will result in dismissal of the subcontractor’s Miller Act Claim.

Like mechanic’s lien requirements, the limits of protection, and the deadlines for notice under the Miller Act are extremely crucial, and must be followed to the letter in order to preserve one’s Miller Act claim. Most critical is the provision which requires any claimant without a direct contractual relationship with the prime contractor to give notice to the prime contractor of its claim, within 90 days of completing work, or last supplying materials. Failure to give notice with the 90 day period extinguishes the claimant’s Miller Act rights. In addition, all claimants are required to file suit in the Federal District Court where the work was performed, or the materials supplied, within one year of last performing work and/or supplying materials. The accompanying chart illustrates in graphic form the limits of protection and notice requirements for Miller Act claims.1

Sensing the need for a remedy for those remote subcontractors/materialmen who are not covered by the Miller Act on federal construction projects, Congress enacted the Prompt Payment Act, 31 U.S.C 3901-06 (1982), wherein all contracts, and subcontracts in the chain thereafter are to be read, by operation of law, as if the Prompt Payment Act language were textually present (even if it is not) in the text of a contract or subcontract requiring that the lower tier contractor/materialmen receive prompt payment from its preceding contracting party in the echelon of contracts, to the extent that the preceding contracting party has received full payment for that portion of the work that the subcontractor/materialmen is entitled to receive. Additionally, the Prompt Payment Act provides that interest as a penalty applies to all outstanding amounts which are not paid timely under the terms and conditions of the Prompt Payment Act to lower tier subcontractors/materialmen so as to prevent the abuses where a remote subcontractor/materialman fails to receive full payment, including interest on all retainages, or is threatened with litigation unless the subcontractor/materialman agrees to accept a discount on retainage amounts due and owing.

In any event, any analysis of a bond payment claim by a contractor, must begin with an inquiry into whether the construction is public or private. If private, usually the most effective means to receive payment is the mechanic’s lien route, where real property exists to satisfy the lien. However, in the public context, liens against public property are forbidden, and bond payment claims must be pursued timely under the Miller Act and/or Little Miller Act. Though mean to be only an overview of the rather extensive law underpinning bond payment claims, a contractor should also be aware that in the public and private context, where a surety bond is provided, a surety company also owes duties sounding in tort, i.e. good faith and fair dealing, in addition to those which are founded on contractual bases. These tort duties of a surety company in either a publicly or privately bonded construction project, can inure to the benefit of a contractor who has not been paid. Because of the necessity of timeliness in seeking payment, all contractors, subcontractors, and materialmen should pay strict attention to prompt and timely payment when seeking payment as a bond claimant, valid mechanic’s lienholder, or otherwise.