FORMS

 

1st Tier Subs and Suppliers
(Contract with the general contractor)

Note: Use either Form 1 or 2, but not both. They do the same thing, except some people like Form 2 because it is more formal.

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The Law

What kinds of claims? Property owned and operated by the Federal government is not subject to a mechanic’s lien. But all is not lost. To encourage subcontractors and suppliers to confer their labor and materials without fear of being unpaid, the Federal scheme under the Miller Act (40 U.S.C. 3133 et. seq.) requires general contractors to post what is called a payment bond, whose sole purpose is to protect those persons. Such bonds are issued by surety companies that obligate the paying out of claims that are properly and timely submitted. In other words, a statutory mandate in lieu of the right to claim a lien.

The good news is that the Miller Act constitutes a uniform set of rules which applies to every state. Learn it once–it applies to all Federal jobs.

What kinds of projects? Typically projects in which the Federal government owns the property. Obvious examples would be departments and divisions of the Federal government as well as the military: a courthouse, post office, VA hospital, work at a military base, or a government building (for example the Department of Energy, Small Business Administration, etc.).

The above examples are very clear, but what about the gray areas? Sometimes you are not certain whether it is a government or private project. Here are the factors used by the courts:

  • Public use. Use or benefit to the public at large.
  • Whether the government entered into a contract directly with the general contractor.
  • Located on Federal property.
  • Federal funding.
  • A Miller Act surety payment bond was taken out.

An example of a gray area would be if the Federal government owned a piece of property and it was leased to a private party who entered into the construction contract and provided the private funding.

In the case of Scarborough v. Carotex Construction (2010), there was private property, privately funded, with a contract between the private owner and the general contractor. It was then leased to the Federal government for a V. A. clinic. The court held that sense it was not owned by the Feds and they did not enter into the construction contract, it was not a Miller Act project.

Note also that just because Federal funding is being provided, it does not necessarily become a Miller Act project. For example, if low income housing is being constructed on private property and only some of the funding is coming from the Federal government, it may not be a Federal project.

Remember, if there is any doubt, give us a call.

Who can make a claim? Only 1st and 2nd tier subcontractors and suppliers, defined as:

  • 1st Tier Subcontractors. Having a contract directly with the general contractor.
  • 1st Tier Suppliers. A contract directly with the general contractor. Covers material and equipment suppliers.
  • 2nd Tier Subcontractors. A contract directly with a 1st tier subcontractor.
  • 2nd Tier Suppliers. A contract directly with a 1st tier subcontractor.

Claimants also include professionals such as architects, engineers, and surveyors who provide professional services. See, e.g., Price v. H. L. Coble Const. Co., 317 F.2d 312, 322 (5th Cir. 1963) (holding that an architect could recover against a Miller Act payment bond). But those professionals must perform on-site responsibility duties. For example, an architect who merely prepares drawings and never visits the site nor does any monitoring activities, would not be included. United States for the Use and Benefit of Olson v. W.H. Cates Const. Co., Inc., 972 F.2d 987 (8th Cir. 1992).

The contract can be either verbal, in writing, or through a purchase order.

This chart will give you a basic idea of who qualifies:

Who cannot make a claim?

  • General contractors. Having a direct contract with the Federal government.
  • 3rd tier and below subcontractors and suppliers. An example would be someone who has a contract directly with a 2nd tier subcontractor.
  • Supplier to a supplier. Regardless of the tier, if you are a supplier who has a direct contract with another supplier. Example: a pump manufacturer who supplies the equipment to a local supply house. See Clifford F. MacEvoy Co. v. Calvin Tomkins Co., 322 U.S. 102 (1944).

The definition of a “subcontractor” or “supplier” is important in this regard. A subcontractor is defined as someone who confers labor and material to the site. A supplier is defined as someone who simply furnishes equipment or materials without providing any installation or labor. So, in the example above, if the manufacturer supplies equipment to a local company that both furnishes the equipment and installs it, the latter would be a subcontractor and a claim could be brought.

However, these excluded persons may sue for breach of contract against the person or entity they have a contract, even if they cannot make a claim against the Miller act bond.

What kind of labor or material? To prevail on a Miller Act payment bond claim, the claimant must establish it has furnished labor or material that was used in the prosecution of the work, or that it was furnished with the reasonable belief that it was intended for use in the prosecution of work. If the labor or material was actually used on another job, the claimant still has rights, unless the claimant knew or should have known that its labor or materials were being diverted.

The kind of labor, materials, and equipment furnished is very broad. Not only does it cover the traditional labor, services, material, and equipment, but it also covers:

  • Gasoline and oil used in trucks which were utilized on the project. See generally: A&M Petroleum, Inc. v. Santa Fe Eng’rs, Inc., 822 F.2d 547 (5th Cir. 1987).
  • Tires, tubes, and tire repairs if provided with the understanding they would be used substantially on the project. See: Tom P. McDermott, Inc. v. Woods Const. Co., 224 F. Supp. 406 (N.D. Okl. 1963).
  • Lumber, tools, and hardware indispensable for the prosecution of the work, even if some portions of that material were reusable on other jobs. See for example: Koppers Co. v. Five Boro Constr. Corp., 310 F.2d 701 (4th Cir. 1962); Color Craft Corp. v. Dickstein, 157 F.Supp. 126 (E.D.N.C. 1957).
  • Rental equipment. Malpass Constr. Co. v. Scotland Concrete Co., 294 F. Supp. 1299 (E.D.N.C. 1968).
  • Groceries and provisions consumed in a boarding house required to be maintained by the general contractor for its laborers as part of the public project at issue. Brogan v. Nat’l Surety Co., 246 U.S. 257, 62 L.Ed. 703, 38 S.Ct. 250 (1918).
  • Rental costs. Examples would include temporary utilities, sanitization, equipment, and vehicles.
  • Professional services if part of the scope of the contract.
  • Material used or consumed on the project.
  • Delay costs, so long as the claimant was not responsible for such delay. Metric Elec., Inc. v. Enviroserve, Inc., 301 F.Supp.2d 56 (D. Mass. 2003). However, lost profits caused by delay are not recoverable. Consolidated Electrical & Mechanicals, Inc. v. Biggs General Contracting, Inc., 167 F.3d 432 (8th Cir. 1999); Mai Steel Service, Inc. v. Blake Constr. Co., 981 F.2d 414, 418 (9th Cir. Cal. 1992).
  • Some courts even allow Social Security and withholding taxes of onsite personnel to be included.
  • Other courts allow the value based upon equipment used and it’s minor repairs (but not major repairs or overhaul work).
  • If you buy new equipment or tools for a project that have a useful life beyond the completion date, this will not be included. United States for the Use and Benefit of Sunbelt Pipe Corp. v. United States Fidelity & Guaranty Co., 785 F.2d 468, 470 (4th Cir. 1986).

If a supplier deliveries material or equipment to the site in good faith, it is presumed to have been used in “carrying out the work” and the claim would be allowed. (40 USC 3133(b)(1)).

But the list is not without limits. For example, exclusions would be for office personnel costs without any onsite related work.

In determining what labor or material is recoverable, the courts can look to the local state lien statutes which discuss whether such items qualify. See generally, Price v. H.L. Coble Const Co., 317 F.2d at 320-21 (relying on state law cases from the state in which the project was located to determine that an architect could recover for its professional services against a Miller Act payment bond). But, other jurisdictions are contra and do not rely on state law when determining this matter. For example: Cont’l Cas. Co. v. Allsop Lumber Co., 336 F.2d 445, 455 (8th Cir. 1964), cert. denied 379 U.S. 968 (1965) (holding that any local lien rule requiring proof of actual incorporation of the material in question into the project was not applicable in a claim against a Miller Act payment bond – the supplier only needed to demonstrate that in good faith it reasonably believed that the materials were intended for the project).

How much can you claim? Your unpaid contract balance with extras, or the reasonable value of labor and materials conferred.

Interest and/or finance charges. You clearly are entitled to pre-judgment interest at the legal rate per state rules. For example, this rate is 10% in California. It would be from and after the due date on invoice until eventually paid. Finance charges, for example 2% per month, are not as well defined, but we always suggest that you include them in the claim if they are part of your contract or purchase order and have been signed by the general contractor / 1st tier sub.

Attorney’s fees and court costs. This is one of the great unknowns. The Miller Act makes no such mention and courts throughout the nation can go either way.

How much is the bond? In almost all cases, the payment bond is required for projects over $100,000. The bond is then for the full amount of the contract. On the other hand, the contracting officer has discretion to increase or decrease the contract amount threshold. Also, some jobs can require a bond if they are $30,000 and above.

How do I find out the surety company info? Many times, the spec book, bidding instructions, or other information given at the beginning of the project lists the name, address, and phone number of the surety company. Or you can just call the general contractor. At the beginning of the job, information flows freely, but as you know, at the end the job when disputes have arisen, people freeze up. So ask for this information as soon as possible.

Any person who submits an affidavit that you have supplied labor or material and that payment has not been made, may get a copy of the payment bond and the contract with the general contractor.  The request should be directed to the appropriate department secretary or agency head of the contracting agency. (40 U.S.C. 3133(a)). That section states:

(a) Right of Person Furnishing Labor or Material to Copy of Bond.— The department secretary or agency head of the contracting agency shall furnish a certified copy of a payment bond and the contract for which it was given to any person applying for a copy who submits an affidavit that the person has supplied labor or material for work described in the contract and payment for the work has not been made or that the person is being sued on the bond. The copy is prima facie evidence of the contents, execution, and delivery of the original. Applicants shall pay any fees the department secretary or agency head of the contracting agency fixes to cover the cost of preparing the certified copy.

The governing authority of the Federal department administering the contract will also give you this information.

As one of the forms on this side, we also have a standard request for surety information: “Affidavit and Request for a Copy of Payment Bond, Contract, and Project Information – Miller Act.”

Federal Notices

Written notices are required to make a claim against the Miller Act payment bond. The kind of notice depends upon your status or tier on the project as follows:

2nd Tier Subcontractors and Suppliers
(Contract with a 1st tier subcontractor)

1. Name of Notice: Miller Act Notice

Purpose: One of the reasons for the Notice is to give the general contractor time to work out payment arrangements before the matter is addressed to the government entity. Further, a general contractor may not always know that a second-tier sub / supplier has not been paid because there is no direct contractual relationship. So the theory goes, the notice would not be required for 1st tier persons because the prime contractor is well aware of their situation.

You are not entitled to recover against the payment bond or bring a subsequent lawsuit unless you first serve this Notice.

The Notice constitutes the “claim” against the payment bond. Once received, the surety company begins processing it and will typically contact you asking for more documentation or information. In some cases, the surety company will ask that you fill out one of their claim forms, in addition. But the point is, from a strict legal standpoint, there is no further legal form to fill out. If you are not paid, the next step is to file a lawsuit.

Content of the notice: At a minimum, the notice must be in writing, indicate clearly the amount due, that you are claiming monies due from the general contractor and surety bond company, and who you have your contract with. The forms on this site comply with these requirements.

When: Within 90 days of your last furnishing labor, materials, or equipment. Note that is not 90 days from completion of the overall project.

How: Certified mail. Serve upon the business or residence address. It is always a good idea to mail the notice at least five days before the due date. Some courts find the notice is effective upon mailing (United States ex. Re. Crow v. Contential Cas. Co. 245 F Supp 871 (E.D. La 1965). But the Fourth Circuit Court of Appeals, in a North Carolina case, has held that the notice must actually be received by the general contractor within the 90-day period. Pepperburn’s Insulation, Inc. v. Artco Corp., 970 F.2d 1340 (4th Cir. 1992).

Who to serve: The statute only requires service on the general contractor. On the other hand, it is recommended you also serve your 1st tier subcontractor,
the contracting officer of the government agency, and the surety company. Our
filing service makes sure all four entities are served.

2. Name of Notice: Freedom of Information Request

Purpose: Getting a copy of the surety bond and general contractor’s agreement is one thing, but extremely beneficial would be other information about the project, including work progress, payments, estimated percentage of completion, and similar information. In most cases, this comes only after a lawsuit and conducting what is called “discovery”, through document inspection demands, interrogatories, subpenas, depositions, and request for admissions. Unfortunately, this is expensive and involves protracted costs and attorneys’ fees.

But what if you can secure this information quickly and cheaply without a lawsuit? Fortunately, the Federal Freedom of Information Act (FOIA) promulgated by President Johnson allows just such access. As described above, you may be told by the general contractor that payment has not been forthcoming from the government and that is why you have not been paid. But what if you were to find out disbursement had already been made and they have been retaining those monies? Such a FOIA request would smoke this out.

There is no single Federal agency which handles FOIA requests. You make that request to the specific department or agency which is in charge of the construction project. So, for example, if you are doing work for the Department of the Army, you would make your request directly to that Department.

Here are resources to find the information about a particular department:

Because the actual request form is free and supplied by the various Federal departments, we do not charge for the form itself. However, it is important to have a precise request of exactly what documents and information you are requesting. You want to have enough information to help your case in the event there is a settlement conference, arbitration, or a court proceeding. We have devised an attachment to the freedom of information request that asks that precise information. See the form titled: “Attachment to Freedom of Information Request–Documents and Information to be Furnished”.

1st Tier Subcontractors and Suppliers
(Contract with the general contractor)

Name of Notice: Notice of Non-Payment and Claim against Miller Act Payment Bond

Purpose: By law, 1st tier subs and suppliers are not required to serve the Miller Act Notice described above. The reasoning is that the general contractor already knows who you are and can deal directly with you as far as working out payment arrangements.

You have two options as far as notification. Many lawyers recommend serving the Miller Act Notice anyway because it highlights your situation, makes clear the non-payment, and hopefully sets up arrangements to get paid. This is because the surety company typically starts the process of investigation as soon as the Notice is received. And, you have to wait 90 days anyway before you file a lawsuit, so why not use the time productively?

Alternatively, you can simply make a direct claim on the bond by sending in the above form of “Notice of Non-payment and Claim Against Miller Act Payment Bond”. It is not a required statutory form, but it is a handy way to get the ball rolling and start the claim. Many times a surety company will respond by asking you to fill out one of their forms, in addition. Go ahead and do this as well.

Content of the notice: It is recommended the Notice be similar to the formal Miller Act Notice, indicating clearly the amount due, that you are claiming monies due from the general contractor and surety bond company, and who you have your contract with.

When: As soon after your invoice becomes due and it is apparent the general is not going to pay. We recommend it be the same time period as the Miller Act notice, namely within 90 days of your last furnishing labor, materials, or equipment.

How: Certified mail. Serve upon the business or residence address. It is always a good idea to mail the Notice at least five days before the due date. Some courts find the notices effective upon mailing (United States ex. Re. Crow v. Contential Cas. Co. 245 F Supp 871 (E.D. La 1965). But the Fourth Circuit Court of Appeals, in a North Carolina case, has held that the notice must actually be received by the general contractor within the 90-day period. Pepperburn’s Insulation, Inc. v. Artco Corp., 970 F.2d 1340 (4th Cir. 1992).

Who to serve: It is recommended you serve the general contractor, surety company, and the contracting officer of the government agency.

2. Name of Notice: Freedom of Information Request

Purpose: See the information above concerning this request for information.

Lawsuit Against Surety Company

Whether you are a 1st or 2nd tier subcontractor or supplier, after serving the notices and claims above and still not being paid, your next legal step is to bring a lawsuit against the surety company to enforce a claim against the payment bond.

When: Within one year of your last furnishing labor, materials, or equipment. It is not one year after the completion of the overall job. But you have to wait at least 90 days after that last furnishing before the lawsuit can be brought. This is considered a “work-out” period in which the parties try to negotiate.

Remedial, warranty, or corrective work will not extend the time per most courts. Further, settlement negotiations do not extend that statute of limitations. That statute of limitations is not satisfied by suing in state court or starting an arbitration.

It has been held that making a final inspection on the project for the purpose of preparing a final estimate does not constitute supplying the “last labor” within the meaning of the Act. Johnson Service Co. v. Transamerica Ins. Co., 485 F.2d 164 (5th Cir. 1973).

One court has found that the correction of defects or the making of repairs following an inspection of the project does not satisfy the Act as being the last labor or material furnished. Johnson Service Co. v. Transamerica Ins. Co., 485 F.2d 164 (5th Cir. 1973).

See also Balf Co. v. Casle Corp., 895 F. Supp. 420, 425 (D. Conn. 1995) (If the work was done “for the purpose of correcting or repairing defects in a completed project, i.e., punch list work,” such work “does not serve to toll the notice period of the Miller Act.”).

Who to sue: You are required to sue the surety company. You also join the general contractor (1st tier subs) or the 1st tier sub (2nd tier subs) for breach of contract. As against the surety company, the caption on the complaint states, for example, “United States of America for the use of ABC Company.” The United States itself or its agencies are not liable in the suit.

What court: In the United States District Court in the district where the contract was to be performed. This means where the project is located.

Other Issues

What happens if there is a binding arbitration clause? Assume a 1st tier subcontractor has a contract with the prime contractor which contains a binding private arbitration provision. Since it is a Federal project, a Miller Act payment bond has been taken out. It is clear that between the sub and the prime the matter must be arbitrated, but the surety is not a party to this contract. So what happens?

Most courts find there is no requirement of having a separate action in Federal court against the surety and a separate arbitration against the general. It would cost too much and would have the possibility of an inconsistent set of judgments or awards. So what most attorneys do is bring an action in Federal court against the prime and the surety company and ask the court to remand the action for all parties to binding arbitration. After all, the surety company will be bound by any judgment against the prime contractor anyway. See the recent case of U.S. f/u/b/o WFI Georgia, Inc. v. Gray Ins. Co., 701 F. Supp. 2d 1320, 1327-29 (N.D. Ga. 2010).

This is because the surety’s liability is derivative of the primes–the surety may typically avail itself of any defense properly available to the general contractor. Thus, an otherwise enforceable agreement to arbitrate between the subcontractor and the general contractor is not barred by the Miller Act; i.e., Miller Act claims can be arbitrated if the parties have so agreed. See, e.g., Bay State York Co. v. Seward Constr. Co., 298 F.Supp. 1356 (D.N.H. 1969); Ray Gains, Inc. v. Essential Constr. Co., 261 F. Supp. 715 (D. Md. 1966).

Incorporating provisions into a subcontract that are contained in the owner– general contractor agreement. In order for a subcontractor to waive rights under the Miller act, they must be clearly and conspicuously contained in a contract document. Merely incorporating the dispute resolution provisions from the general contractor–owner agreement into a subcontract is not sufficient to waive rights under the Miller Act. See Fanderlik-Locke Co. v. U.S. for Use of Morgan, 285 F.2d 939 (10th Cir. 1060), cert. denied 81 Ct. 826,  365 U.S. 860.

Waivers. Be careful when signing progress waivers on a Federal project. You may inadvertently be waiving your rights to bring a claim against the bond. Under 40 U.S.C. 1331(c), a claimant may not waive the right to sue under the bond unless there is a signed waiver after the work in controversy has been performed. In other words, it is against public policy to sign such a waiver or include a waiver provision in a subcontract agreement at the beginning of the job.

The reasoning is clear. If you have performed work and there is a dispute, nothing prevents you from signing a settlement agreement which waives your rights against the bond. But otherwise, at the beginning the job or before the disputed work is performed, no such waiver is valid.

Further, a waiver is not valid merely because a subcontract agreement recites that it incorporates the dispute clauses found in the agreement between the owner and the general (which waives such rights).

Can a general contractor be forced to pay twice? The risk to a general contractor under the Miller Act statutes is it could be required to pay for the same work twice. It is not a defense that the prime may have paid its 1st tier subs for the work that a 2nd tier sub is seeking payment for, although the prime can sue for indemnity from the 1st tier sub who has not properly paid its 2nd tier subcontractor.

STATE PUBLIC WORKS

What is a state public works project? This is a project in which you are constructing, repairing, developing, or renovating government property. State projects encompass city, county, state, utility districts, and universities. This typically means public funds are being used for such work.

What kind of jobs? Covers the whole range of government work, including, but not limited to public buildings (for example a courthouse, city hall or other government department building) highways, streets, parks, bridges, canals, dikes, pipelines, public housing, schools and colleges, airports, utility districts, dams, sewer projects, water projects, and the like. Generally speaking, jobs done by government agencies and departments. It does not cover Native American trust reservation land.

Uncertain whether a project is public or private? Give us a call (800-995-9434) and we can help. For example, some projects are hard to discern, including public housing, airports, and mixed or multiple use buildings.

Mechanics Liens are not available. No state allows a mechanic’s lien against their public property. Although there are some minor exceptions of having a mechanic’s lien which garnishes state funds (for example New York), the “dirt” per se is not never subject to a lien. Thus, a mechanic’s lien may only be recorded on a private project.

Is there a uniform law for state public works? Unfortunately no. It is important to research each state because their statutes very.

Payment bonds. In every state, when a general contractor is awarded a public works project over a certain amount, he or she is required to secure a payment bond through a surety company. The sole purpose of that bond is to protect subcontractors and suppliers from nonpayment.

When a valid claim is made against the surety company, they will pay you directly. Then through the doctrine of subrogation, they will turn around and seek reimbursement from the general contractor. Needless to say, this can also interfere with their bond rating and future premiums.

Bond depends on the amount of the general’s contract. In most states, all contracts $50,000 and above must have a payment bond. In some states it is $100,000 and above. Then there are states that require a bond even for tiny projects: Nebraska and Pennsylvania–$5,000 and above; Wyoming–$7,500 and above; Minnesota and South Carolina–$10,000 and above; North Carolina– $15,000 and above. Call us to check out your state.

Amount of bond. Although some states set the amount of the bond in the discretion of public officials, most states are in the range of either: a) a bond for the total amount of the contract or b) a bond for 50% of the contract. A small minority of states have lesser amounts (for example Michigan is 25%). Call us to see the range for your state.

Performance bonds. This is a bond which guarantees the performance of a general contractor. In other words, if there are allegations of defective work, untimely performance, or breach of contract, the public entity can bring a claim against the bond for those losses. By definition, no claims may be made by subcontractors or suppliers.

Who can make a payment bond claim? Only subcontractors and material suppliers. In fact, the whole purpose of the bond is to protected them if they are unpaid. Such a claim is not available to the general contractor. Unlike Federal jobs, there is no limitation to first and second tier contractors in asserting a bond claim.

Get a copy of the payment bond before starting work. The last thing you want to do is run around at the last moment at the end of the project to find out what surety company has issued the payment bond. On most medium to large size projects, the spec book or contract itself lists the surety by name, address, and phone number. If not available from that source, simply request one. A general contractor is typically generous in the furnishing of documents and information at the beginning of the project—not necessarily at the end.

If you’re still not getting the information, call us and we will give you a free request form. Note that the government agency itself and the surety company almost without exception will give you a copy of the bond upon request.

Pre-claim notices for state public works. Many subcontractors and suppliers mistakenly think there is no requirement of giving a pre-claim bond notice. They simply assume they can wait until the end of the project and claim it directly against the surety company. This is not always the case. Many states require a pre-claim notice and if not, you will lose your right of redress against that payment bond.

Call us, and we will give you a summary of your state’s law.

What is a public retainage claim? Some states, for example Washington state, require a public body to retain a percentage of the overall contract price (for example 5%) until the project is fully closed out. Unpaid subs and suppliers can assert claims against that fund. There is no similar claim for Federal projects.

What happens if you make a claim against a payment bond and are still not paid? This also varies by state, but typically you would bring a suit against the surety company and general contractor. We also have the templates for such a lawsuit. Call if you wish to purchase one.

Good luck.

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