The Miller Act is the federal bond statute applicable to construction contracts awarded by the federal government or its agencies. It provides payment bond protection to subcontractors and suppliers similar to the Massachusetts payment bond statute, c. 149, §29, but is narrower in scope. For a detailed explanation of Miller Act bond coverage, see Construction Law Comments Winter 1996.
Congress has made several significant changes to the Miller Act in recent years which improve payment security and are worth noting. The first change raises the amount of payment bonds required on federal projects. Formerly the Miller Act required the penal sum of the payment bond to be forty to fifty percent of the general contract price for contracts up to five million dollars; but for contracts above five million dollars the penal sum required was still only fifty percent of five million dollars. Thus on a fifty million dollar project, the total required bond protection available to project subcontractors and suppliers was two million five hundred thousand dollars, a clearly inadequate amount to secure all payments on so large a contract.
The revised Miller Act requires the penal sum of the payment bond to be equal to the full general contract price, unless the Contracting Officer makes a written determination that such penal sum would be impractical. If he makes that determination, the Contracting Officer may reduce the penal sum below the general contract price, but in no event can he set that amount lower than the amount of the performance bond. By statute, the Contracting Officer is obligated to require a performance bond that is adequate for the protection of the government. As a result, almost all performance bonds on federal projects are for the full contract price. Therefore, except in extraordinary circumstances, payment bond protection for subcontractors and suppliers on federal projects will now be for the full amount of the general contract price.
The second change to the Miller Act makes proof of notice easier. Previously, the Miller Act required that a subcontractor to a subcontractor must give written notice of its claim to the general contractor by certified mail as a condition for bond recovery. The revised statute permits written notice by any means which provides third party verification of delivery. That can include U.S. Express Mail, Federal Express, UPS, or the equivalent.
The third change in the Miller Act inserts provisions which make waiver of bond protection more difficult. The provisions bar any waiver of Miller Act payment bond protection prior to the time a subcontractor actually furnishes labor or material. That means a general contractor may not require a subcontractor to waive its payment bond rights as a condition of obtaining the subcontract. For any waiver of Miller Act bond rights to be effective, it must be in writing, must be signed by the person whose right is waived and must be executed after the person has furnished labor or materials. In short, the amended statute requires a clearly authorized statement of waiver at a time when the general contractor's leverage to force an unwilling waiver is limited, and the subcontractor is in a position to evaluate the risk of such waiver.
These changes improve payment protection for subcontractors and suppliers on federal projects.
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