Contractors working on public contracts may perform for a number of public owners across a variety of jurisdictions. While it is always prudent for a contractor to know the contractual requirements of each jurisdiction, it is even more important to do so when crossing state lines. All states have some statute requiring payment bonds on public projects. They are referred to as “Little Miller Acts” because they are fashioned after the federal Miller Act, 40 U.S.C. § 3131 et seq. Like the federal Miller Act, these statutes require payment bonds on public projects because of the inability to place a lien on public property. These payment bonds ensure payment to subcontractors and suppliers performing work or supplying materials to the project. Subcontractors on state and local procurements need to know the requirements of these Little Miller Acts to protect themselves in the event they are not paid for their work. Prime contractors, too, need to understand the Little Miller Acts if they are to defend against claims on their bonds, either on procedural grounds—most often when claims are untimely filed—or on the merits of the claim.
Payment Bond Thresholds
Though virtually all public jurisdictions require that the prime contractor post a payment bond, the bond amount varies from state to state. First, Little Miller Acts have minimum thresholds based on the prime contract value for when payment bonds are required. For example, California requires a payment bond on all public projects in excess of $25,000. Ca. Civ. Code § 9550(a). Nevada requires a payment bond on all projects in excess of $100,000. NRS § 339.025(1)(b). Most construction projects exceed these thresholds, but they can come into play on smaller projects.
More important to contractors than the minimum threshold are provisions that some states have enacted that vary the value of the payment bond based on the value of the contract. Most states require the prime contractor to post a payment bond for the full amount of the contract. But other states have reduced the minimum bond amount. For example, the Alabama Little Miller Act requires a payment bond in an amount not less than 50% of the contract value. Ala. Code § 39-1-1. Such a reduction in the amount of the bond has several possible ramifications to the contractors working on the project. First, it may allow prime contractors with bonding capacity less than the value of the project to bid on and be awarded the project. Subcontractors on a project where the payment bond is less than the value of the prime contract face the risk that, in the event of non-payment by the prime contractor or higher-tier subcontractors, the value of the payment bond may not be sufficient to cover their work.
The most important requirements of the Little Miller Acts are the different notice requirements between jurisdictions. Both prime contractors and subcontractors alike will face differing notice requirements under these acts. In some jurisdictions, prime contractors must provide up-front notice to subcontractors and suppliers of the bond. For example, in Georgia, a prime contractor furnishing a payment bond must file a notice of commencement of work with the clerk of the superior court of the county in which the work is being performed. The prime contractor must also supply a copy of the notice of commencement to any subcontractor that makes a written request. See O.C.G.A. 13-10-62.
Potential claimants must pay careful attention to the notice provisions that they must comply with to be able to pursue legal action on the bond. First, the time frame in which a claimant has to file a claim on a bond will vary significantly depending on the jurisdiction. In Illinois, for example, a claimant must file notice of the bond claim within 180 days of the date on which the last item of work was performed. 30 ILCS § 550/2. In comparison, New Mexico’s notice requirements vary with the claimant’s position in the chain of contracts. For subcontractors at the second tier and below, notice must be provided to the contractor within 90 days of the last date on which work was performed. NMSA § 13-4-19.
Statutes of Limitations
Contractors should keep in mind that the notice requirements of each Little Miller Act are different than the statutes of limitation for filing an action in court. The notice provisions constrain the amount of time that a potential claimant can wait to provide notice of nonpayment to the prime contractor and surety. A statute of limitations sets the deadline for filing the lawsuit to enforce the bond claim. In some states, the claimant must file suit to enforce its payment bond claim within a specific time period after making the bond claim. For example, in New Hampshire, the suit must be filed within one year of making the bond claim. See N.H. Rev. Stat. Ann. § 447:18. Compare that to the District of Columbia where the suit must be filed within one year of the last date on which work was performed. See DC-ST § 2-357.02. In New Mexico, however, the statute of limitations is tied to completion of the bonded contract. A payment bond claimant in New Mexico must file its suit within one year of the “final settlement” of the contract. See NMSA § 13-4-19(c). Although the time limits appear to be similar, the triggering events for statutes of limitation can vary quite significantly between jurisdictions. Contractors who are unaware of these differences risk losing their bond rights.
In each state, Little Miller Acts control the bond rights for contractors working on public projects. But no two states’ Little Miller Acts are the same. They all differ in often small but always significant ways. Failure to understand these differences can have important consequences for all contractors working on public projects, whether they are prime contractors, first-tier subcontractors, subcontractors farther down the tiers of a job, or suppliers at any level. As a best practice, at the beginning of each project, each contractor should review the nuances of the applicable Little Miller Act, particularly if they often perform jobs in various states.