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How can the State Department waive the bonding requirements on a $17M project without violating the Miller Act?

I am/was a subconsultant on the design team portion of a $17M design-build project for the State Department. The GC is filing bankruptcy and has not paid us anything. We were told by the State Department that they did not have a payment bond and were instead allowed to submit a letter of credit. Is this possible? Is it possible to file a claim against the letter of credit, then?

1 reply

Apr 19, 2018

The federal Miller Act requires certain security for parties providing labor or materials to federal projects - with some exceptions. Performance and payment bonds, unless subject to one of the applicable exceptions, are required on all federal projects of $150,000 or more. Projects of between $35,000 and $150,000 may be protected by "two or more of the following payment protections, giving particular consideration to inclusion of an irrevocable letter of credit as one of the selected alternatives:

(i) A payment bond.
(ii) An irrevocable letter of credit (ILC).
(iii) A tripartite escrow agreement.
(iv) Certificates of deposit. The contractor deposits certificates of deposit from a federally insured financial institution with the contracting officer, in an acceptable form, executable by the contracting officer.
(v) A deposit of the types of security listed in 28.204-1 and 28.204-2.

However, there are certain exceptions of the performance and payment bond requirements for specific projects. The bonding requirements may be waived for: 1) contracts performed in foreign countries, 2) contracts for improvements to or construction of military buildings with respect to cost-plus-a-fixed fee and other cost-type contracts, or 3) contracts for improvements to or construction of buildings for the department of transportation with respect to cost-plus-a-fixed fee and other cost-type contracts.

So, there are potential reasons that the bonding requirement could be waived. However, the good news is that there was an alternate form of security provided on this project - so all hope may not be lost to recover through a security claim. It would be worthwhile to take a close look at the Letter of Credit and see where you stand.

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