The Miller Act is an important piece of legislation. Honestly, it set the precedent for payment protection across the country. Without the Miller Act, and the subsequent Little Miller Acts, those providing work on public projects would lack crucial payment protection. Under a recently proposed amendment, those providing work on federal projects would receive “more” protection moving forward.
Further Miller Act Reading: What You Need to Know About The Miller Act.
Miller Act Background
On private projects, mechanics liens are available to protect the right to payment. On public projects, though, a mechanics lien may not be filed because a private party cannot encumber public land via mechanics lien. Thus, some other form of protection was necessary for those providing labor and materials to public projects.
Enter: the Miller Act. When passed, the Miller Act was landmark legislation. It provided a process, through surety bonds, for lower-tiered claimants to receive similar protection on public jobs. For federal projects exceeding $150,000, payment bonds provide the security that liens provide for private jobs. There are protections in place for jobs under $150,000 too, but subs and suppliers on jobs exceeding $150,000 can rest easier.
But that threshold wasn’t always so high. No, it’s increased over time to keep up with inflation (as required by federal law). However, an amendment has been proposed that would create an exception for the Miller Act. If passed, the threshold for bonding would not be subject to the same increases as other federal thresholds. At least for the relative short-term, the threshold would be stuck at $150,000.
Federal Subcontractors and Suppliers May Get More Bond Protection
The proposed amendment was recently discussed by Contractor’s Compass.
OK. So technically federal subcontractors and suppliers might not be receiving “more” protection. Rather, this legislation would prevent the bond threshold from increasing. Still, as inflation rises, more down the chain parties would be better protected. The math checks out.
By leaving the threshold for federal projects and payment bond requirements at $150,000, the Miller Act can better do what it was created, in part, to do: Protect project against nonpayment. Each time the threshold for bonds increases, projects that had previously required protection for subs and suppliers no longer need to afford the protection of payment bonds.
Currently, the Miller Act threshold (along with other federal acquisition thresholds) is reviewed every 5 years. Upon review, it is determined whether an increase is necessary to account for inflation. For example, upon review of the Miller Act threshold in 2010, the threshold for the Miller Act rose from $100,000 to $150,000 – a $50,000 increase! Under current law, another review will take place in 2020. At that time, the number could rise to $200,000.
It’s also worth noting that other statutes tied to federal construction projects already stand as exceptions to the rule requiring review for procurement thresholds – including the Davis-Bacon Act. So exempting the Miller Act wouldn’t be all that out of the ordinary.
The National Association of Surety Bond Producers and The Surety & Fidelity Association of America have their own reasons for supporting a lower threshold for required bonding. Nevertheless, they produced this compelling opinion: 41 USC 431a Must Be Amended to Exempt the Miller Act.
What’s the Big Deal?
We say it all the time: construction payment and risk (unfortunately) go hand in hand. The risk of slow payment or nonpayment is higher in the construction industry than in any other industry. Fixing the construction payment problem is not as simple as arming everyone with recovery options for when nonpayment occurs. No, the real fix must come from shifting ideals and expectations within the industry. This requires communication and payment chain transparency. However, when a project does go sideways, claimants need protection. By leaving the threshold for bond requirements at $150,000, more claimants will be protected, and that’s what the Miller Act is all about: protection.