Getting a government contract is a big deal. It usually means that you have a track record of hard work and of getting things done. It means that you have carefully prepared your bid, that you have undertaken to understand every aspect of the job, and have presented a great case for why you should get the contract. Obtaining a government contract is a testament to your skills. It’s a lot like winning the lottery, if the lottery was won by skill and determination — if not blind luck.
As any lottery winner can tell you, though, there are a lot of downsides to winning. Distant fourth-cousins come out of the woodwork with great investment opportunities. You suddenly start getting a lot more unwelcome friend requests. The contracting analogue is distant contractors trying to get payment out of you for the job, using the Miller Act. Understanding the federal Miller Act, and the statewide Little Miller Acts, is the best way to protect yourself from unnecessary payments.
Understanding the Miller Act
The Miller Act is a federal law governing contractors. For any awarded bid over $100,000, a contractor is required to have not just a performance bond, but also a payment bond. This ensures that subcontractors will be paid. Any outstanding payment issues come through the surety and not the government. This frees the government from costly and time-consuming litigation. It is a way of protecting taxpayers from unfortunate cases of negligence.
These are needed because, by law, liens cannot be attached to government buildings. This makes sense because, in theory, they are owned by taxpayers and the citizenry of the United States. Thus, the Miller Acts were passed to prevent corruption and double-dealing that could arise from this loophole.
The Little Miller Acts (which, weirdly, aren’t known as “Miller Lite Acts”) are state-based and vary in their particulars. Some states require all government work to come with payment bonds, and others have monetary stipulations (some of which, like Indiana, have an even higher threshold than the Federal Government). Knowing what state has what requirement is obviously the first step in applying for any bid.
Regardless of what level this is at, the Miller Acts are known as “the subcontractors’ friend.” After all, if you are a subcontractor or a supplier, you have recourse to action in the case of a missed payment. Even if the principal contractor defaults, you have the right the get your payment out of the bond.
Subcontractors, of course, should know this going in, but if you are unsure of whether or not the contractor had a contract obliging a payment bond, you can contact the GSA to find out any public information.
Who Is and Who Isn’t Protected
Of course, as we said, we’ve seen distant subs and suppliers come out of the woodwork trying to make claims on the Miller Act. It’s understandable and part of human nature: you start at the top. But not everyone is covered under these statutes. They don’t extend into infinity and are actually fairly limited. Here is a list of who can claim coverage.
As you can see, the chain is short, especially for suppliers. If a supplier contracts with a first-tier supplier, they are not protected. Third-tier contractors are not protected, either. This is deliberately short so that people aren’t disincentivized from pursuing government contracts. There is also, on the federal level (though it varies again within states), a one-year statute of limitations. To continue the lottery analogy, this is to stop everyone past first-cousins from asking you for money, and even your brother-in-law only has a year to get his act together.
Government bids are, in theory at least, all about transparency. In this sense, the Miller Act serves two functions. It allows for subcontractors to be protected by making their rights in the situation very clear, even with unusual laws regarding government property, and it protects the contractor by putting a strict limit on what can be claimed against them. The goal is to help make the process function efficiently for everyone involved.
Getting the contract requires the backing of a strong Surety company with a reputation you can depend on. Contact Surety1 today for a quick and fair bonding process that’ll get you to work.