- In general, there are three situations where a payment bond may be waived under the Miller Act:
FOREIGN The Contracting Officer may waive the requirement for a bond for contracts to be performed in a foreign country (See 40 U.S.C. § 3131 (d) ).
MILITARY The Secretaries of the Army, Navy and Air Force, can waive the requirement for a payment bond on certain cost-plus contracts. (See 40 U.S.C. § 3134(a)).
TRANSPORTATION The Secretary of the Dept. of Transportation can waive the requirement for a payment bond on certain cost-plus contracts. (">See 40 U.S.C. § 3134(a)) and certain contracts relating to construction, alteration, etc., of vessels under the Merchant Marine Act. (See 40 U.S.C. § 3134 (b)).
- Public-private partnerships (P3s) raise concerns for subcontractors and suppliers regarding payment assurances. The "blending" of private and public financing and ownership of construction and real estate poses unique risks for subcontractors and suppliers, who cannot file mechanic's liens on projects where the federal government owns the land. At the same time, subcontractors and suppliers don't have the assurances of payment bonds when P3s are privately owned or financed. On such projects, no Miller Act bond is required.
- The Miller Act requires a contractor on a federal project to post two bonds: A Performance Bond and a Labor and Material Payment Bond. The surety company issuing these bonds must be listed as a qualified surety on the Treasury List, which the U.S. Department of the Treasury issues each year. This list is also known as the Circular 570. List of approved sureties: http://www.fms.treas.gov/c570/
- The Miller Act notice must state with "substantial accuracy" the amount sought and the name of the party to whom the labor or material was provided.
- The Miller Act does not discuss contingent payment clauses. The Prompt Pay Act [31 U.S.C. § 3901 et seq.] does not require payment to a sub until 7 days after a prime receives payment from the agency. As such, the best practice is to assume pay-if-paid clauses are enforceable and might waive bond rights.
- Amount of Payment Bond
- 50% of the contract price when the contract is less than $l-million.
- 40% when the contract is from $1-million to $5-million.
- Contracts in excess of $5-million require a payment bond in the amount of $2.5-million.
- Last furnishing is generally held to mean "substantial completion" and small additional shipments or replacement and repair that generally do not extend the 90 day notice period.
- On federal contracts between $25,000 and $100,000, bond protection is not required but payment protection is required for subcontractors and suppliers (posting of cash etc).
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