June 8, 2018

Construction Alert: No Liens on Land Owned by the Federal Government - How to Ensure You Still Get Paid

Preti Flaherty Construction Alert

Unpaid subcontractors and suppliers typically can file a mechanic’s lien against a project on public land when they are not paid.  When done correctly, the lien will attach to the property, and protect the unpaid party’s interests.  When the Federal Government owns the property, there is no legal right to file a mechanic’s lien.  However, there is still a remedy under federal law at 40 U.S.C. § 3131, et seq., which is more commonly known as the Miller Act.  The Miller Act requests that before any construction contract exceeding $100,000 is awarded by the Federal Government, the prime contractor must furnish to the Government a performance bond and a payment bond, which become binding when the contract is awarded (note that the corresponding Federal regulations set a benchmark of $150,000 before both bonds are required).

The performance bond protects the Government in the event of abandonment or nonperformance by the contractor.  The payment bond, on the other hand, protects subcontractors and suppliers.  If the prime contractor is not paid by the Government for the job, it cannot recover under its own payment bond, but may have a contract related claim against the Federal Government.

Under the Miller Act, first-tier subcontractors and material suppliers who have entered into a contract with the prime contractor can sue the surety on the payment bond if not paid in full within 90 days after the last day in which they performed labor or furnished materials for which the claim is being made.  Any lawsuit must be filed within one year from the last date that materials or services were provided.  A Miller Act Notice (see below) is not required.

Any party that has entered into a contract with a first-tier subcontractor, such as second-tier subcontractors and material suppliers to first-tier subcontractors, must deliver a Miller Act Notice to the prime contractor.  There are strict requirements for the Miller Act Notice, including that it must:

  • Be sent within 90 days from the last furnishing of labor and/or materials;
  • Be in writing;
  • State with substantial accuracy the amount owed,
  • Name the party to or from whom the labor or material was furnished; and
  • Be delivered by any means that provides written verification of delivery or by any means by which the United States marshal of the district in which the project is located may serve the summonses. 
  • Additionally, any lawsuit must be filed within one year from the last date that materials or services were provided. 

The Miller Act does not provide any protection for subcontractors below second-tier subcontractors/suppliers.  Instead, their remedy is a lawsuit against the party they contracted with.

If a party hasn’t been paid on a Federal project, it can obtain a copy of the bond and contract by sending an affidavit to the contracting agency confirming your role in the project.  Many states have passed “Little Miller Acts” which require contractors post similar performance and payments bonds for any state construction projects.