The Miller Act - Federal Project Bond Claims

A recent case, United States for the Use and Benefit of Air Control Technologies Inc. v. Pre Con Industries, Inc., from the US Court of Appeals addressed the statute of limitations with respect to the Miller Act. We thought it may be of interest to highlight some differences with Federal public works claims.

 

A short overview of the Miller Act is in order. Similar to California's bond scheme to protect subcontractors and material suppliers performing work on government-owned projects, the federal government has a bond requirement, set forth in what is known as the Miller Act. There are some very distinct differences between claims on the federal bonds, as compared to bonds that apply to California state or municipal government projects. One significant difference is the statute of limitations which was discussed in the recent case, but in the context of whether procedurally the court should have dismissed (thrown out the lawsuit). Under the Miller act (again only governing federally owned projects) - similar to California - there are two bond requirements on federal projects where the contract amount is greater than $100,000.00. One of the bonds is a performance bond - for the protection of the owner. The second bond is a payment bond - intended to protect those that supply labor and/or materials to the federal public works job. Note that California requires these bonds on projects greater than $25,000.

 

Different than California projects, a Preliminary Notice is not required within 20-days of commencing work; instead, to perfect a claim, a Miller Act notice must be served within 90 days after the date that labor or materials were last furnished under the contract. A lawsuit on a Miller Act payment bond must be initiated within one year of the last date that the claimant furnished material or labor to the project. While that may seem longer than the time to sue in California, it is timed from the last labor or material of the particular claimant, rather than the completion of the overall project by all contractors or suppliers. This can be a significant difference for someone who provided their labor or material early in the project.

 

There are other differences in these types of claims, including the types of notices and who has bond rights - also, unlike California projects, there is no stop payment notice right. The most significant difference is that persons who do not have a contract with someone who does not have a contract with the prime contractor cannot bring a Miller Act bond claim. That means that third and lower-tiered subcontractors, and material suppliers who sell to a second tier (or lower) subcontractor cannot sue on a Miller Act bond. Additionally, subcontractors and material suppliers have no legal right to sue the federal government directly but can only seek recovery from the prime contractor or the surety bond company.

 

While claims on the Miller Act bonds are brought in federal court, if for some reason the Miller Act bond remedies are not pursued, the person providing the materials or labor can file suit for breach of contract against their customer in state court, regardless of the fact that it performed work on a federal project.

 

The discussion in the U.S. Court of Appeals case was highly technical. It concerned whether the the statute of limitations was "jurisdictional" - an integral part of the statute - or a "claims-processing rule" - for the purpose of seeking orderly progress of the litigation by requiring specific procedural steps by specific times. The difference is significant as in an attack on jurisdictional grounds in federal court, additional evidence can be used to throw out a claim at an early stage of the litigation, but on other grounds the court can only dismiss the action if the action fails solely by reading the allegations of the lawsuit itself.

 

There was no dispute that the statute of limitations is one year from the last day the claimant provided labor mor material to the project. What was at issue was whether a late claim took the jurisdiction to consider the claim away from the court. The U.S. Court of Appeals held that the because the Miller Act does not clearly state that the one-year statute of limitations is jurisdictional, that the limitations period should be treated as a claim-processing rule. This particular case was sent back to the lower court for further proceedings to determine if the passage of the one-year limitations period could be ascertained simply from reading the allegations of the complaint.

 

While this case is very technical and not of much guidance on the presentation of construction claims, if you perform work on a federal public works project, make sure to file your Miller Act notice timely and bring your claim forward well before the statutory time frames in order to best protect your rights to collect.