Miller Act

The Miller Act (40 U.S.C. sections 3131-3134, enacted 1935) solves a structural problem: federal property cannot be subjected to mechanics liens, so unpaid subcontractors and suppliers on federal projects would otherwise have no security at all. The Act requires prime contractors on federal construction contracts exceeding $100,000 to furnish two surety bonds — a performance bond protecting the government and a payment bond protecting subcontractors and suppliers. The payment bond, generally set at the full contract price, becomes the fund from which unpaid lower tiers recover.

Coverage extends two tiers below the prime: first-tier subcontractors and suppliers who dealt directly with the prime, and second-tier claimants — sub-subcontractors and suppliers to first-tier subs. Suppliers to suppliers, and anyone below the second tier, are outside the bond's protection, which makes chain position a live underwriting question on federal work. The claim mechanics are exact: first-tier claimants may sue on the bond directly, but second-tier claimants must first give the prime contractor written notice within 90 days of their last furnishing of labor or materials, stating the amount claimed and the party to whom the material was furnished. Suit must be brought within one year of last furnishing, in federal district court where the contract was performed.

For a credit department, federal jobs are among the most securable receivables in construction — the surety behind the payment bond is a rated insurer and the bond amount is substantial — but only for claimants who preserve rights. Identify federal projects at order entry, confirm your tier, obtain the bond (contracting agencies must furnish a copy on request), and calendar the 90-day notice and one-year suit windows from last furnishing per job. The pattern repeats at the state level through little Miller Acts, with thresholds and windows that differ from the federal rule.