One of the most common issues subcontractors face is non-payment. Sometimes subcontractors have a positive relationship with the prime contractor and resolve the issue amicably. However, when the parties cannot reach an agreement, the subcontractor faces financial turmoil. Even worse, if a subcontractor fails to take prompt legal action, it can lose access to one of the most effective ways to recover the amounts due.

On a private project, a subcontractor may file a mechanic’s lien to secure its right to payment. However, when the owner is the federal government, a subcontractor has no lien rights. Instead, the subcontractor must pursue its claims via the Miller Act. For every government contract, the Miller Act requires that the prime contractor post a payment bond to guarantee that its subcontractors and suppliers will be paid in a timely manner. The Miller Act allows subcontractors to make claims against the bond when the prime contractor fails to satisfy its payment obligations. However, the right to make such a claim does not last forever. The deadlines for a payment bond claim differ depending on who the subcontractor or supplier has contracted with.

The Miller Act identifies four types of parties that can bring bond claims:

1. A first-tier subcontractor is any subcontractor that has contracted directly with the prime contractor.
2. A second-tier subcontractor is a subcontractor that has contracted with a first-tier subcontractor.
3. A first-tier supplier is a material supplier that has contracted directly with the prime contractor.
4. A second-tier supplier is a material supplier that has contracted directly with a first-tier subcontractor (suppliers that contract with a first-tier supplier have no bond claim rights).

The Miller Act does not allow for claims to be made against the bond by any subcontractor or supplier lower than tier two.

The clock for filing a claim starts on the last day you furnished materials or labor under your contract. No subcontractor or supplier may file a claim until 90 days after this date. Second-tier subcontractors and suppliers have more stringent requirements than first-tier subcontractors and suppliers because they must provide notice during the 90-day waiting period. The notice must be sent to the prime contractor, specifying the outstanding balance and stating the subcontractor’s or supplier’s intent to file a Miller Act claim. There is a split between the courts as to whether the notice must be provided within 90 days of the non-payment, or within 90 days of the last date that the subcontractor or supplier furnished labor or materials on the project. We recommend taking a proactive approach and doing both. As a second-tier subcontractor or supplier, failure to provide notice within the 90-day period can be fatal to your ability to file a Miller Act claim.

Although there is no requirement to do so, we highly recommend sending the notice to the government and the surety as well. The notice may cause the government to get involved if Prompt Payment Act issues are evident and may invite the surety’s early involvement since they will be liable if the Miller Act claim succeeds. We also recommend that first-tier subcontractors and suppliers provide notice despite the fact that it is not required. Again, the earlier the process is started and the earlier the parties above the prime are involved, the more likely it is that the contractor will be paid quickly.

Once the 90-day period has passed, and any applicable notice requirements have been satisfied, subcontractors and suppliers have exactly one year from the last date that materials and/or labor were furnished to file suit. A failure to file suit within this statute of limitations is fatal to a Miller Act claim. To recap:

First-Tier Subcontractors & Suppliers:

• No notice requirements, but notice is strongly recommended.
• Must file civil action no sooner than 90 days after the last labor or materials were furnished, but within one year after materials and labor were last furnished.

Second-Tier Subcontractors & Suppliers:

• Provide notice to the prime contractor after each occurrence of non-payment as a pre-cautionary matter.
• Provide notice to the prime contractor within 90 days of the last date that the subcontractor or supplier furnished labor or materials.
• Must file civil action no sooner than 90 days after the last labor or materials were furnished, but within one year after materials and labor were last furnished.

Miller Act complaints are filed in the federal district where the contract was performed. However, this venue provision can be waived by a contract provision that covers venue. Typically, Miller Act claims do not result in legal action as it is in the surety’s best interest to either force the prime to pay or settle the matter before litigation commences. Thus, early notice may be the most important step.