Licensure and the Miller Act

The recent case of Technica LLC v. Carolina Casualty Insurance Company brought the Miller Act to the forefront recently. This case actually started as a simple matter of a sub-subcontractor not being paid in full. It turned into a dispute over licensure.

Before the licensure issue is discussed, a short overview of the Miller Act is in order. Federal public works are not subject to either Stop Payment Notice or Mechanic's Lien rights. However, there is a payment bond that is intended for the protection of those who supply labor and material to Federal jobs. It is known as the Miller Act Bond.

This is the only non-contractual remedy for unpaid claimants (other than the prime contractor) on Federal public works. One can always sue its customer; however, the bond is another means of protecting one's accounts receivable.

A Federal public work includes any work in which the United States has an interest, which is done for the public, and for which the United States is authorized to expend funds. A Federal public work includes work on property owned by the United States and work paid for by the United States for public use.

The Miller Act only requires that labor and material be furnished and supplied and does not require that it be incorporated in the structure as is required under California Mechanic's Lien laws. If the labor and material is furnished in good faith and under the reasonable belief that it is to be used in the work, then the Miller Act comes into effect.

The Miller Act protects those people with a direct contractual relationship with the contractor and/or a direct contractual relationship with a subcontractor. A material supplier who supplies material to a material man is not covered. An employee of a sub-subcontractor is not covered.

A Bond Notice must be served within ninety (90) days after the last labor or material has been provided to the construction project. It must be served by personal service, or registered mail, addressed to the prime/general contractor at any place it maintains an office or conducts its business, or its residence. This is different than most California notice requirements that trigger the notice from completion or cessation of the entire project, not just the claimant's scope of work. It is also different because the Notices goes to the prime/general contractor rather than the surety.

In the Technica case, the procedures under the Miller Act were complied to with to perfection. The issue at hand was whether the sub-subcontractor was properly licensed during the Federal project, which happened to be in California. The sub did not hold a California contractor's license so it was argued that the sub was not entitled to payment as required by California's Licensing Law. If this were a California public works or private works project, the matter would indeed have been concluded because the sub would not have been entitled to collect because it was not properly licensed. However, other Court of Appeal Circuits have held that rights and remedies under the Miller Act may not be conditioned by state law and the Ninth Circuit agreed.

In other words, the sub was not subject to California's laws since it was working on a Federal project. In addition, the U.S. Supreme Court has held that enforcement of state licensing requirements against Miller Act claims would wreak havoc on the uniform application of the Miller Act. This is because contractors bid on Federal projects that frequently span multiple states and requiring them to comply with the licensing requirements of the various states would go against the intent of the Miller Act which was to reduce the hurdles to seeking payment or wages denied to the Federal subcontractors, labor providers and materialmen.

This means that under certain circumstances contractors can bid on Federal projects that are located in a state that they do not hold licensure in. But beware, because the Federal Government can impose obligations for licensure of those performing the work and if those provisions are not complied with, collecting may still be problematic.

Bruce Rudman has been practicing construction law for 18 years. He has garnered a great reputation in the construction field not only as a litigator but on licensing issues with the CSLB, particularly disciplinary proceedings. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Bruce Rudman can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at bdr@agrlaw.com, or at www.agrlaw.com