The U.S. Miller Act protects subcontractors and suppliers against non-payment when furnishing materials or labor to a federal project. But does it really? That’s what is subject to debate in the United States House of Representatives, where the “Security in Bonding Act of 2011″ (HR 3534) is being considered.
As we’ve discussed ad nausea here on the Construction Lien Blog, suppliers or subcontractors who furnish to a federal construction project cannot file a traditional mechanics lien when unpaid, but must instead file a bond claim under the federal Miller Act. In short, prime contractors must furnish a payment bond whenever working on a federal contract. Those unpaid on the project can request payment directly from the bonding company.
The Security in Bonding Act addresses the bond itself, asserting that Miller Act bonds are unfortunately sometimes empty promises. Under the act, bonds can be issued by companies or individuals. If a bond is issued by an individual, the standards are much, much lower as to what the individual must have (in assets) to provide the bond. As a result, many individual bonds are backed up by non-liquid assets, and consequently, offer subcontractors and suppliers little protection.
According to the official bill summary
Revises requirements related to assets pledged by a surety…the assets pledged by such surety shall: (1) consist of eligible obligations given as security instead of surety bonds; and (2) be submitted to the government official required to approve or accept the bond, who shall deposit the assets with a depository (the Secretary of the Treasury, a federal reserve bank, or a depository designated by the Secretary).
Earlier this month, the American Subcontractors Association published its support for the bill, claiming that HR 3534 would “end the regulatory double-standard allowing ‘illusory’ assurances of subcontractor and supplier payment on federal projects.” Those in the construction industry, it claimed, “shouldn’t be forced to bet the future on unproven individual surety assets.” View the ASA Press Release. Also, view the ASA’s “Statement for the Record” to the US House of Representatives.
While it’s quite rare when a federal project’s contract manager would accept an individual surety, the law certainly allows it to happen and, on occasion, it does. I agree with the ASA that there’s no reason to allow this in the Miller Act. When bonds are placed under the Miller Act, they should be reliable, and there shouldn’t be any loopholes to allow unreliable bonding. When unpaid on a federal project, filing a Miller Act Claim should be a reliable form of security for contractors and suppliers.
We’ll be monitoring this, and report on any updates.