In this blog, presented by SunRay Construction Solutions and Stephen D. Marso, Attorney at Law, Whitfield & Eddy, P.L.C., you will learn in detail about the various sections and their provisions under Iowa’s Little Miller Act.
What is the Little Miller Act?
The Little Miller Act is based on the Federal Miller Act, and it refers to the Iowa Code, Chapter 573. The federal projects are typically governed by a federal statute called the Miller Act, and most of the states, including Iowa, have similar laws for their state and local projects. These are known as the Little Miller Act.
The Little Miller Act is broken down in to four main categories:
- Retainage, Progress Payments, and Final Payments
- Claims and Lawsuits
- Bonds and Sureties
Let’s take a detailed look at each of these categories.
Section 573.1 is entitled as “Definitions” and there are two important terms that have to be satisfied before this statute applies.
- Public Corporation – A public corporation is essentially the owner of the project and as per the statute, ‘public corporation’ shall embrace the state, and all counties, cities, public school corporations, and all officers, boards, or commissions empowered by law to enter contracts for the construction of public improvements.
- Public Improvement – This refers to an improvement, the cost of which is payable from taxes or other funds under the control of the public corporation, except that in cases of public improvement for drainage or levee purposes the provisions of drainage law, chapter 468, in cases of conflict shall govern.”
If you satisfy the above two requirements, then you will trigger the Little Miller Act of Iowa to govern your project.
Section 573.12(1) is entitled as “Retainage”. This code basically addresses what retainage is. A retainage is:
- the money held each month from what is otherwise owed to the contractor for that particular month’s pay application.
- Typically, the contractor will submit monthly pay applications and the payments are made on a monthly basis.
- For each monthly amount that is certified and payable to the contractor, up to 5% of the amount is withheld by the owner. This is known as retainage.
- Remember that the statute does not require any retainage to be held, instead it only limits the top amount that can be withheld.
Section 573.13 is entitled as “Inviolability and disposition of fund”.
- What it ideally means is that the owner cannot plead non-compliance with Section 573.12, and they have to abide by it.
- It also explains the purpose of the retainage which is to have funds in place to pay the claims for materials furnished and labor performed on the improvement.
- So, if any subcontractors, suppliers, or lower-tier subs and suppliers are not paid, the retainage is used to pay them.
Section 573.14 is entitled “Retention of unpaid funds”. This section describes how the owner should withhold the funds and for how long.
- As per this section, the funds shall be retained by the owner for a period of 30 days after the completion and final acceptance of the improvement.
- After this period of 30 days, if the claims are still on file, then the owner shall continue to withhold the funds in the amount of double the total amount of all claims on file.
- The remaining balance of the unpaid fund, or if no claims are on file, the entire unpaid fund, shall be released and paid to the contractor.
Section 573.16 is entitled as “Optional and mandatory actions – bond to release”. This is an exception to the previous rule on how long the owner has to hold the retainage.
- If there is a claim filed by a subcontractor, such as the general contractor, the prime contractor can make a demand upon that and file a claim on the claimant.
- The claimant is then required to file a suit within 30 days of that demand, and if they fail to do so, the amount has to be paid to the prime contractor.
- This is one way through which prime contractors can get access to the retainage earlier than is required.
- If the claimant files a lawsuit within 30 days, then the general can post a bond to bond off that claim.
- The bond amount is double the amount of the claim which matches the amount that the owner is holding on that claim. Once the bond is furnished, the owner has to pay that retainage.
In addition to the above exception, there is another exception to the default rule on holding retainage.
Section 573.28 is entitled as “Early release of retained funds”.
- Once there is substantial completion achieved by the prime contractor of the entire project or part of it, they can ask for a release of the retainage as it relates to the substantial completed part of the project.
- So, as per this section, the owner is required to release the retainage for the whole project, or a part of it, if the whole project if not completed substantially.
- There is also a caveat to the owner’s requirement to release the retainage. If there is still work to be performed, then as estimate is made about the amount of work that remains and its estimated value.
- The owner can then withhold two times the value of the remaining work and any remaining amount above that can be released.
- An itemization of the labor or materials yet to be provided, or the reason that the request for release of retained funds is denied, shall be provided to the contractor in writing within 30 calendar days of the receipt of the request for release of retained funds.
- Finally, before the request is made by the prime contractor for release of retained funds, they have to give a written notice to all the subs and suppliers within 10 calendar days before they make the request to the owner.
On any of the Little Miller Act projects, the contractor has to furnish a bond, at the beginning of the project. The amount for this project is typically 75% of the contract price.
Section 573.2 is entitled “Public improvements – bonds – waiver and remedies”.
- This is a performance bond which guarantees the contractor’s performance to the owner.
- As per this section, contracts for the construction of a public improvement shall, when the contract price equals or exceeds twenty-five thousand dollars, be accompanied by a bond, with surety, conditioned for the faithful performance of the contract, and for the fulfilment of other requirements as provided by law.
Section 573.3 is entitled as “Bond mandatory”, and it says:
- The obligation of the public corporation to require, and the contractor to execute and deliver said bond, shall not be limited or avoided by contract.
- This means that the owner can enter into an agreement to alter the bond requirements if it is mandatory to furnish a bond.
Section 573.5 is entitled as “Amount of bond”, and it says:
- The performance bond should be 75% of the contract price.
Section 573.6 is entitled as “Subcontractors on public improvements”.
- As per this section, the bonds also serve as a payment guarantee.
- There are some specific requirements of the bond; however, the primary point to consider is that the bond also provides a payment guarantee.
Section 573.3 is entitled as “Claims for material or labor” and it defines who can file a claim.
- Ideally, anyone who has a contract with the prime contractor or subcontractor can file a claim with the owner.
- There are certain entities who cannot file a claim, such as material suppliers to a subcontractor.
- So, if there is a subcontractor who is only furnishing materials, and they enter into an agreement downstream with someone else to furnish only materials, then the downstream entity is not entitled to file a claim.
Section 573.10 is entitled as “Time of filing claims”, and it says:
- The claimant should file their claims no later than the expiration of 30 days after the completion and final acceptance of the improvement.
- Claims may be filed after the 30-day deadline only if the owner has not fully paid the contract price and there is no lawsuit pending to adjudicate rights in and to the unpaid portion of the contract price.
- As per the Iowa Supreme Court, the above point is limited to claimants who contract directly with the prime contractor, and that it is only available if there is at least one proper claim filed under the first point.
Section 573.23 is entitled “Abandonment of public work - effect”.
- This section addresses what happens if the prime contractor is terminated or abandons the project. If this happens, there is an effect on the timing of filing the claims.
- If the prime contractor is terminated or abandons the project, then the final completion and final acceptance is deemed to have occurred from the date of termination or abandonment.
- This is an exception to the general rule (30-day deadline) that we previously discussed.
Section 573.11 is entitled as “Claims filed after action brought”, and it says:
- The court will allow claimants to file a claim after a lawsuit is filed, provided it does not delay the action.
- Seems that this option should be limited to those claimants who have contracts directly with prime contractors, just like Section 573.10.
Section 573.15 is entitled as “Claim against retainage or bond”.
- There is a notice requirement on claims, and it only applies to those who do not have a direct contract with the prime contractor.
- So, if anybody downstream has a contract with the subcontractor or supplier, they need to provide a notice to the general contractor.
- This is a written notice which should be provided within 30 days of the first date that the entity furnished labor/materials.
- If this notice is not provided on time, then the entity has forfeited their ability to make a claim against retainages or bonds.
- They also have to certify that they have complied with the Notice Provision.
- A key point to remember is that this section does not apply to highway, bridge, or culvert projects as referred to in section 573.28.
Know More: Contractual Payment Provisions
Section 573.16 is entitled as “Optional and mandatory actions – bonds to release”.
- As per this section, the owner, prime contractor, or any claimant for labor or materials who has filed a claim, or the surety can file a lawsuit.
- This lawsuit must be filed no later than 60 days after the completion and final acceptance of the improvement.
- An exception to this is if there is a 30-day demand made by the prime contractor, subcontractor, or claimant, then they have to file the lawsuit within 30 days of that demand.
- If they don’t, then they forfeit their claim.
Section 573.22 is entitled as “Unpaid claimants – judgment on bond”, and it says:
- If there is a lawsuit filed, and the judgment is in the favor of the claimant, the court will order the retainage to be paid to the claimant to satisfy the claim,
- However, if the retainage is not sufficient, and there is some amount still owed, then there is a judgment against the bond on that.
- The bond acts as a backup to pay the claimant if the retainage is not sufficient.
Section 573.21 is entitled as “Attorney fees”, and it says:
- The court may tax, as costs, a reasonable attorney fee in favor of any claimant for labor or materials who has, in whole or in part, established a claim.
- So, even if those who defend a claim prevail, they cannot recover the attorney fees. The provision is in favor of only the claimants.
Not sure about the Little Miller Act yet? Reach out to SunRay to safeguard your payment rights. Contact our experts on 800-403-7660 for legal assistance. Stay ahead with SunRay!