Welcome back to our DMV Construction Law Series, where each month we examine a different set of legal issues important to contractors. This installment delves into the state laws that allow contractors to assert claims on payment bonds for public projects in DC, Maryland, and Virginia.
Congress enacted the federal Miller Act to protect contractors who furnish labor and materials on federal projects. Similar statutes are in place in many states for a variety of state and county public projects, including in DC, Maryland, and Virginia. These state statutes, which are heavily modeled on the Miller Act, are commonly known as Little Miller Acts.
From state to state, most Little Miller Acts provide a fairly uniform level of protection to contractors by enabling them to make claims on a payment bond. Prime contractors must obtain these payment bonds from a surety or sureties acceptable to the government and must furnish these payment bonds prior to the Notice to Proceed with the contract work. Like the federal Miller Act, the Little Miller Acts permit any person or company who has furnished labor or material and has not been paid in full before the expiration of 90 days after the last material or labor was furnished to sue on the payment bond. Because the contractor claimants are not a party to the bond themselves (which is a contract between the prime contractor and the surety), the Little Miller Acts provide a statutory mechanism by which the contractors can make a claim.
Common Timing Mechanisms
If a subcontractor is forced to wait 90 days or more for payment, it may file a lawsuit seeking payment for the overdue amounts. This lawsuit can be filed against just the prime contractor’s surety or, depending upon the terms of the subcontract, can include the prime as well. DC and Virginia require the lawsuit to be filed within one year of the last date that the subcontractor performed substantial work. Maryland is unique in that it permits the bond claimant to file suit on the payment bond up until one year after the public body finally accepts the work performed under the contract, which can significantly extend the filing period.
Subcontractors or suppliers with a direct contract with a prime contractor are not required to provide notice of their bond claim until filing their lawsuit. All other claimants must provide written notice “within 90 days after the labor or materials for which the claim is made were last supplied.” The notice must be sent by certified mail to the prime contractor’s residence or office and provide both the amount claimed and describe the labor or material provided.
Other Protections for Little Miller Act Claimants
Many construction contracts contain clauses that limit the contractual remedies of subcontractors. For instance, some contracts will force a subcontractor to waive its ability to file a bond claim or assert lien rights on a project. Both Maryland and Virginia contain statutory protections to specifically preclude such practices. Maryland does not permit such waiver provisions in the initial contract, and Virginia prohibits any waiver of bond rights before work has commenced. These provisions are considered void and against public policy by those states. However, a subcontractor can still waive its ability to assert bond or lien rights after work has commenced under the project, such as through the lien waivers that are typically required with monthly pay applications. While these lien waivers are generally understood to waive only bond or lien rights for work performed to date, subcontractors should evaluate those waivers carefully as the language can sometimes be so broad as to waive any such rights.
Another common limitation on subcontractors’ potential remedies is the contingent payment clause, usually in the form of a “pay when paid” or “pay if paid” clause. DC has a Prompt Pay Act that limits the ability of a general contractor to withhold money from its subcontractors and suppliers. This act does not permit contingent payment clauses to limit the ability of a subcontractor to file a bond claim under the DC Little Miller Act.
Additionally, recent trends in courts interpreting the federal Miller Act have disfavored sureties asserting a pay-if-paid defense. Subcontractors can rely on this precedent to argue that state Little Miller Acts provide the same protection and that sureties cannot defeat such payment claims on that basis.
Getting Copies of the Bond
It is important for subcontractors to obtain copies of the bond as early in the project as possible. Without it, a subcontractor may not know which surety requires notice of a potential claim. The identity of the surety is also needed to file any bond enforcement lawsuit. The form of the bond may also enumerate additional conditions that supplement (but cannot subtract from) Little Miller Act protections.
Subcontractors should make a request for the bond in writing. Some states, including DC and Maryland, designate government officials to provide copies of a project’s bond upon request via an affidavit stating that the subcontractor provided labor and materials to the project and has not been paid. Virginia permits any person to request such a copy of the bond under the state’s Freedom of Information Act (FOIA). Ultimately, subcontractors may find state FOIA requests quite useful, as they are not only effective for obtaining copies of bonds but also for requesting other documents, such as the prime contract with the owner or records of payments by the owner to the prime contractor.
Conclusion
It is crucial for subcontractors to understand all the requirements for asserting a bond claim. Failure to meet deadlines can result in a complete bar to recovery under a Little Miller Act. Subcontractors should consult legal counsel to ensure that they can capitalize on these important tools for collecting payment on public construction projects.
