Everything Contractors, Subcontractors & Suppliers Need to Know About the Federal Miller Act - Iowa - Webinar

In this blog, presented by SunRay Construction Solutions and Stephen D. Marso, Attorney at Law, Whitfield & Eddy, P.L.C., construction professionals in Iowa can learn in detail about Iowa’s Federal Miller Act, how it differs from the Little Miller Act, what are the various bond and notice requirements, and more.

What is the Federal Miller Act?

The Federal Miller Act is a federal statute that governs construction projects that meet the below requirements:

• The construction project must be for the construction, alteration, or repair of a public building or public work of the federal government.
• Federal projects that solely involve demolition do not fall under the Federal Miller Act. However, Iowa’s Little Miller Act does not include this demolition exclusion.
• The contract amount should be more than $150,000. Although the Act states $100,000, there has been an increase in the threshold due to inflation.
• The final requirement is that the United States, an agency of the United States, or an entity acting as an agent of the United States must be a party to the contract.

If all these requirements are met, then the Federal Miller Act is triggered.

What are the Bond Requirements?

One of the key points to remember while dealing with the Federal Miller Act is that on such projects, the prime contractor is required to post both the performance bond and the payment bond.

A) Performance Bonds – As per the statute, the performance bond must:

• Guaranty that the prime contractor will perform the project as per the agreed contract. This is one of the main elements of the performance bond.
• It should also cover payment of employee wage taxes.

In some cases, the federal government’s contracting officer may also require some additional performance bonds or other security beyond what is required by the Act. Typically, depending on the type of agency you are dealing with, you should look at their specific policies and address the requirements accordingly.

Other key points to remember with regards to the performance bond include:

• The amount of the performance bond is not specified in the Act.
• The only requirement is that the amount should be what the office considers adequate for the government's protection.

B) Payment Bonds – As per the statute, the payment bond must:

• Guaranty payment to personas, essentially subcontractors supplying labor and materials for the construction project.
• Like the performance bond, the federal government’s contracting office may require additional security beyond what the Act requires.
• In terms of the amount of the payment bond, it must be equal to the total amount payable under the contract. However, there is an exception to this rule:
• If the contracting office determines that the total amount payable is impractical, then they can set the required amount, but it should be in writing.
• Also, the amount cannot be less than the amount of the performance bond.  

C) Copy of the Bond – How do you get a copy of the bond?

• If you are a subcontractor with a potential claim and want to get a copy of the bond, you must submit an affidavit that you have furnished labor or material for the work described in the contract. You also need to state that payment for the work has not been made and that you are suing on the bond.
• When you submit this affidavit, the federal government must provide a certified copy of the payment bond and the contract for which it was given.  
• The Iowa Little Miller Act slightly differs here. It does not have any specific provision for interested parties to get a copy of the bond. So, if you are governed by the Little Miller Act, then you can ask the other party to include a copy of the bond in the contract.
• If you face any resistance, then you can also go through the Open Records Act and get a copy of the bond.  

D) Exceptions – Here are some exceptions to the general rules of bond requirements:

• If you have a construction contract for at least $35,000 but not more than $150,000, then the Federal Acquisition Regulation must provide alternatives to payment bonds for protecting the payment rights of the those providing labor or materials.
• Although the Act states a range of $25,000 to $100,000, the threshold has been increased for inflation.
• The contracting office of the federal government can waive off the bond requirements for work to be performed in a foreign country if they find it impracticable for the contractor to furnish the bond.
• The secretaries of Army, Navy, Air Force, Transportation, and Commerce may waive off the bond requirements for certain contracts.

Who are the Payment Bond Claimants?

As per the Miller Act, typically, construction professionals who have furnished labor or materials in carrying out the work for which the payment bond has been furnished are allowed to seek payment under the payment bond. A key point to remember is that:

• When you make a payment claim under the Miller Act, it is only against the payment bond. You cannot make any claim against the retainage held by the owner.
• However, the Little Miller Act allows you to make a claim on both the payment bond as well as the retainage.
• Courts have limited the scope of permissible payment bond claimants. What this means is that to make the claims, you must have a contractual agreement with either the prime contractor or the subcontractor.

Sometimes, things get complicated while defining who is a subcontractor. According to one of the Court cases:

• A subcontractor under the Act is “one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract.”
• Now, if you are a supplier who has a direct contract with the prime contractor, then you are eligible to make a claim against the payment bond.
• However, if you are a lower-tier supplier supplying labor or materials to a materialman, then you are not permissible Miller Act payment bond claimants.

Typically, the courts utilize a balancing test containing various factors to distinguish between a subcontractor and a materialman.

What are Some of the Key Notice Requirements?

Below are some of the notice requirements that you need to consider:

• If you have a direct contract with the prime contractor, then there is no notice requirement for payment bond claimants. So, if you are a prime contractor who has directly hired a subcontractor or a supplier, then there is no notice requirement for those subs and suppliers.
• Payment bond claimants who do not have a direct contract with the prime contractor, but instead have a direct contract with the subcontractor must provide a written notice to the prime contractor.
• This allows the prime contractors to be aware of the lower-tier entities and the fact that they are making a claim.
• The written notice must be provided within 90 days of the claimant’s last date of furnishing labor or materials for which the claim is being made.
• If the notice is not provided promptly, the Court will bar the claim.

The next thing to focus on is the contents of the notice. Because of 2002 amendments to the Act’s notice provisions and subsequent court cases, the requirements of the notices’ content are unclear and unsettled. Ideally, it is recommended that:

• The payment bond claimant’s notice should include the term “substantial accuracy” with the following:
• The material and labor furnished to the project.
• To whim the materials were supplied or for whom the labor was done or performed, and
• The balance owed.

It is always better to provide as much information as possible.

Now that your notice is ready, what’s the next step?

• The notice must be delivered to the prime contractor at any place where they maintain an office or conduct business, or at their residence.
• The courts are not very strict on how the prime contractor gets the notice. So, even if the prime contractor does not get the notice as outlined in the statute, it will be okay based on the caveat that the notice is delivered to the prime contractor by a third-party.
• The service must be affected by any means that provides written, third-party verification or by any way the U.S. Marshal of the district in which the project is located may serve summons.
• So, for example, if a third-party sends the notice to the prime contractor via email and there is evidence that they have received it via email, then you are good to go.
• However, it is recommended that to better protect your rights, you comply with the statute requirements.

One key aspect to focus on is the notice requirements for payment bond claims by unions and health and welfare trust funds.

• For example, a union or trust funds claims are often based on labor performed by multiple employees of a subcontractor. There are two questions you need to find out the answers for:
• Are all the individual laborers on which the claims are based the actual claimants, and should the notice requirement be met for each of them individually, or can the union or trust fund aggregate them into one group?
• Is the timeliness of the notice measured for each individual laborer or for the aggregated group of laborers?

What is the Statute of Limitations?

So, what are the statute of limitations for filing a suit on a claim?

• A payment bond claimant cannot file a lawsuit on a claim until the expiration of 90 days after the claimant’s last date of furnishing labor or materials for which the claim is being made. This is a ‘reverse statute of limitations.’
• So, if you file your notice within 30 days of your last day of work, you still must wait for 90 days from your last day of work to file the lawsuit.
• The Iowa Little Miller Act also has the reverse statute of limitations where the claimant needs to wait for 30 days after the completion and final acceptance of the project.

The general statute of limitations on the Miller Act states:

• A payment bond claimant must file a lawsuit on a claim no later than one year after the claimant’s last date of furnishing labor or material.
• You need to make sure that you are calculating the timeline correctly because if the Court determines that the last date is earlier than what the claimant says, then it could result in an untimely lawsuit.
• Iowa’s Little Miller Act’s standard statute of limitations is 60 days after the completion and final acceptance of the project.

What Is the Key Jurisdiction, Venue and Other Lawsuit Requirements?

• If you are a claimant, then you need to file the lawsuit in the exclusive jurisdictions of the federal courts. You cannot bring them to state courts and there is also no “amount in controversy” requirement.
• The venues of such lawsuits must be in the U.S. District Court for any district in which the contract was to be performed and executed.
• There is a specific requirement in the Act regarding how you caption your lawsuit. The payment bond lawsuit must be brought in the name of the United States for the use of the person bringing the action.
• For example, U.S. for Use of John Doe v. XYZ Constr. Co. & ABC Surety Co.
• The government is not liable for any costs or expenses of any lawsuit.

How Can You Waive the Miller Act Rights?

There are restrictions on what can be an effective waiver of Miller Act rights. It is effective only if it meets the below three requirements:

• The waiver of the payment bond claimant’s Miller Act rights should be in writing;
• It should be signed by the claimant; and
• It can be executed only after the claimant has furnished labor or materials for use in the contract's performance.
• For example, if you are a prime contractor, and you include a waiver of the Miller Act rights in your subcontract, and the subcontractor signs it before starting the work, then it is not considered as effective.
• It needs to be a separate waiver which is signed by the claimant after they have started working.
• In contrast, Iowa’s Little Miller Act does not have specific waiver requirements.

So, these were some of the key details about Iowa’s Federal Miller Act. Make sure that you educate yourself about all the key requirements of the Miller Act and adhere to them while working on public construction projects. Don't risk payment delays! Secure your rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.