Transcript Current Subcontractor and Supplier Miller Act and State Payment Bond Claim Issues: Avoiding the Common Pitfalls to a Subcontractor or Material Supplier’s.

Current Subcontractor and Supplier Miller Act and State
Payment Bond Claim Issues: Avoiding the Common Pitfalls to
a Subcontractor or Material Supplier’s Recovery on
Federal and State Projects
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The Miller Act governs performance and payment bonds and claims upon
such bonds on federal construction projects
"Little Miller Acts" are state statutes, based upon the federal Miller Act,
requiring prime contractors on state construction projects to post bonds
State courts generally interpret Little Miller Acts in conformance with
federal statute with local variations
Some state statutes have stronger payment protection than Miller Act
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See, e.g., Sloan Constr. Corp. v. Southco Grassing, Inc., 659 S.E.2d 158 (S.C.
2008) (where original payment bond surety became insolvent and prime
contractor failed to respond to SCDOT’s request for replacement bond, SCDOT
liable to subcontractor)
State-By-State Review of Public Project Payment Bond Laws by NACM:
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Reprinted with permission by James D. Fullerton at
http://www.fullertonlaw.com/docs/appendices/50_state_survey_of_payment_
bond_rights.pdf
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Proper Claimants
Labor and Material Covered
Notices Required
Time for Filing Suit
Amount of Bond Required
Contracts Excluded
Penalties for Not Providing Bond
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Miller and Little Miller Acts:
Proper Claimants
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Although the Miller Act payment bond is intended to protect "all persons
supplying labor and material in carrying out the work provided for in the
contract," the parties that may assert a claim under it are limited to those
who have direct relationship with prime or first-tier subcontractor:
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Second-tier material supplier who supplied a first-tier material supplier (and
not first-tier subcontractor) cannot recover under Miller Act payment bond.
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First-tier subcontractors; i.e., subcontractors who contract directly with prime contractor
Second-tier subcontractors; i.e., subcontractors who contract with a first-tier subcontractor
First-tier material suppliers; i.e., suppliers who contracted directly with prime contractor
Second-tier material suppliers who contract with a first-tier subcontractor
City of Kansas City, MO ex rel. Lafarge North America Inc. v. Ace Pipe Cleaning, Inc., 349 S.W.3d 399(Mo.
Ct. App. W.D. 2011) (holding that Missouri's Little Miller Act extends bond protection only to those
providing labor and material to first-tier subcontractor)
Many Little Miller Acts do not limit subcontractor tiers (e.g., Washington,
California, North Carolina, New Mexico, Georgia, Wyoming)
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Tom Barrow Co. v. St. Paul Fire & Marine Ins. Co., 205 Ga. App. 10, 11 (1992) (holding Georgia’s Little Miller
Act permits supplier to recover from second-tier subcontractor)
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Third-tier and more remote subcontractors and material suppliers cannot
recover against the Miller Act and many Little Miller Act bonds.
Beware of Straw Parties and Sham Transactions
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Glen Falls Insurance Co. v. Newton Lumber & Manufacturing Co., 388 F.2d 66 (10th Cir. 1967)
(prime contractor contracted with a relative that performed no work in order to limit Miller Act
payment bond exposure)
United States ex rel. M.A. Bruder & Sons, Inc. v. Aetna Casualty & Surety Co., 480 F. Supp. 659
(D.D.C. 1979) (court disregarded an entity in the contracting framework that was an alter ego of
subcontractor and held that a material supplier to that straw party was entitled to make a claim on
the bond).
U.S. v. Southwind Const. Services, LLC, 510 Fed. Appx. 688 (10th Cir. 2013) (refusing to collapse the
distinction between the prime contractor and its affiliated subcontractor that would have given
Miller Act payment bond recourse to a second tier unpaid equipment rental company).
Ragan v. Tri-County Excavating, Inc., 62 F.3d 501 (3d. Cir 1995) (court pierced the corporate veil and
found subcontractor was a dummy of the prime contractor, allowing claimant to recover on
payment bond)
U.S. ex rel. Johnson Pugh Mech., Inc v. Landmark Constr. Corp., 318 F.Supp.2d 1057 , 2073 (D. Colo.
2004) (setting out 10 factors to determine whether subcontractor was alter ego or joint venturer of
prime contractor)
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Distinction between “supplier” and “subcontractor” is
critical for remote suppliers
Landmark case: Clifford F. MacEvoy Co. v. U.S. for Use and
Benefit of Calvin Tomkins Co., 322 U.S. 102, 110-111 (1944)
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Has the party assumed a “significant and definable” part of the
construction project? If so, party is a “subcontractor.”
Two tests have developed for the subcontractor/material
supplier distinction:
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the on-site work test (e.g., Louisiana and Indiana); and
the substantial relationship test (federal and majority of states)
– Factors to weigh when determining subcontractor/supplier relationship set forth
in U.S. ex rel. Conveyor Rental v. Aetna, 981 F.2d 448, 451–452 (9th Cir.1992)
– Extremely fact-sensitive analysis
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Factors in favor of “subcontractor”:
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the product supplied is custom fabricated;
the product supplied is a complex integrated system;
a close financial interrelationship exists between the companies;
a continuing relationship exists with the prime contractor as evidenced by the requirement
of shop drawing approval by prime contractor or the requirement that the supplier's
representative be on the job site;
the supplier is required to perform on site;
there is a contract for labor in addition to materials;
the term “subcontractor” is used in the agreement;
the materials supplied do not come from existing inventory;
the supplier's contract constitutes a substantial portion of the prime contract;
the supplier is required to furnish all the material of a particular type;
the supplier is required to post performance bond;
there is a backcharge for cost of correcting supplier's mistakes; and
there is system of progressive or proportionate fee payment.
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Factors in favor of “material supplier”:
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a purchase order form is used by the parties (de minimus consideration);
the materials come from preexisting inventory;
the item supplied is relatively simple in nature;
the contract is a small percentage of the total construction cost;
sales tax is included in the contract price; and
Fixed payment requirement (e.g., “full payment within 90 days”)
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General principles:
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“Subcontractor” does not require performance of on-site work so long
as custom work (e.g., fabrication of pipe, millwork, doors, windows,
curtainwall and structural steel) performed per detailed requirements
of the contract plans and specifications
– Just a “material supplier”…
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U.S. ex rel. E&H Steel Corp. v. C. Pyramid Enterprises, Inc., 2006 WL 2570849 (D.N.J. 2006) (analyzing "how
much does a steel fabricator have to do to qualify as a subcontractor under the Miller Act," and concluding that
the steel fabricator was a mere "materialman" outside the coverage of the bond).
Berlin Steel Const. Co. v. Salah & Pecci Leasing Co., Inc., 5 A.3d 608 (Del. 2010) (denying payment bond claim of
crane owner who leased a crane to a crane operator who in turn contracted with a steel erection company who
contracted with a prime contractor)
Farwest Steel Corp. v. Mainline Metal Works, Inc., 48 Wash. App. 719 (Div. 1 1987) (holding that a supplier was
too remote under Washington Little Miller Act since first-tier party deemed “materiaman;” even though it
furnished custom fabricated goods, contract was less than 1% of prime contract and performed no on-site work
on site was a "materialman”).
E. Indus. Mktg. Inc. v. Desco Elec. Supply, 651 F. Supp. 140 (W.D. Pa. 1986) (supplier of custom conduit not
subcontractor because “coating, cutting and threading operations” did not constitute custom manufacturing)
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General principles: (cont’d)
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“Subcontractor” does not require performance of on-site work so long
as custom work (e.g., fabrication of pipe, millwork, doors, windows,
curtainwall and structural steel) performed per detailed requirements
of the contract plans and specifications (cont’d)
– Yes, a “subcontractor”…
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Preussag Intern. Steel Corp. v. March-Westin Co., 221 W. Va. 472 (2007) (holding that a steel fabricator was a
"subcontractor" under West Virginia law and following the general rule in the MacEvoy case).
Eggers Industries v. Flintco, Inc., 201 Cal. App. 4th 536 (2011) (following the MacEvoy determination that a
manufacturer of custom-made doors was a “subcontractor” under Little Miller Act even though all custom work
was subcontracted to another entity; essential factor was what manufacturer “agreed” to do)
Barton Malow Co. v. Metro Mfg., Inc., 214 Ga. App. 56 (1994) (same result involving fabricated pipe under
Georgia "Little Miller" Act);
U.S. ex rel. Capital Computer Group, LLC v. Gray Ins. Co., 453 Fed. Appx. 905 (11th Cir. 2011) (holding that a
person who took a subcontract from a prime contractor and then subcontracted all of the work other than
provision of insurance and indemnification of the prime contractor was nevertheless a “subcontractor” for
Miller Act payment bond rights)
Aquatic Plant Mgmt., Inc. v. Paramount Eng'g, Inc., 977 So. 2d 600, 602 (Fla. Dist. Ct. App. 2007) (firm providing
specially fabricated plants deemed “subcontractor” though material never incorporated into wetlands project)
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Substantial relationship test = “Subcontractor”
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F.D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116 (1974)
– Court applied “substantial relationship test” and determined party claimant furnished
material to was a “subcontractor” where it was clearly intertwined with the prime
contractor, had a long term working relationship with the prime contractor, and had been
awarded both a supply and installation contract in a particular federal project.
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U.S. ex rel. E&H Steel Corp. v. C. Pyramid Enters., Inc., 509 F. 3d 184 (3d Cir. 2007)
– Court held that a supplier acted as a “subcontractor” for Miller Act purposes when it
supplied pre-fabricated structural steel pursuant to a purchase order, prepared shop
drawings and erection drawings, designed connectors, and performed design-assist
engineering amounting to 7.8% of the prime contract.
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LaGrand Steel Products v. A.S.C. Constructors, 108 Idaho 817 (Ct. App. 1985)
– Court found that steel fabricator was a subcontractor for the purpose of Idaho Little Miller
Act. Relying on substantial relationship test, court determined that: (1) subcontractor
provided custom fabrication of steel; (2) work was not unduly complicated and performed
exclusively off-site; and (3) contract involved no erection or supervision thereof. BUT,
contract was $1 million and constituted 10% of the total prime contract and prime
contractor required personal performance guarantees.
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Substantial relationship test = “Material Supplier”
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U.S. v. Ellis Const. Co., 398 F. Supp. 719 (E.D. Tenn. 1975)
– Party determined to be material supplier who custom manufactured steel items for
the project and whose contribution to the total cost of improvement was less than 9%
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Aetna v. Gibson Steel Co., 382 F.2d 615 (5th Cir. 1967)
– Party determined to be material supplier when it fabricated steel items such as stairs,
ladders, and trench covers and frames for federal project where: (1) contract was 2%
of total project; and (2) party did not have a sufficiently important relationship with
the prime contractor because there was no on-site work (either installation or
supervision).
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1.
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Are you in privity of contract with the prime contractor?
If not, who are you in privity of contract with?
Please provide a copy of your contract or purchase order.
2. Describe the nature and scope of your subcontract,
including the type and quantity of labor and/or materials you
are furnishing under your subcontract.
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Are you performing any on-site work (e.g., erection, installation,
supervision, etc.)? Describe.
Are you performing any 0ff-site work (e.g., fabrication, shop drawings)?
Describe.
Are you supplying stock items or specially manufactured materials to
meet project specifications? Describe.
Are there others supplying similar goods for the project, or are you the
sole supplier of these types of goods?
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3. What is the total contract price of your subcontract?
4. What is the total contract price of the project?
5. Are you giving any performance guarantees or bonds to
the prime contractor?
6. How are you being paid? Monthly payment applications
based upon progress or fixed payment?
7. Are you including sales tax in your invoice?
8. Are you referred to as “subcontractor” in your the
supplier is required to post performance bond;
9. Is retention being withheld from your progress
payments?
10. Does your contract allow the prime contractor to
backcharge you for corrections?
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Miller and Little Miller Acts:
Labor and Materials Covered
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Types of Labor and Material Covered
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Labor and materials “incorporated into,” “used” or “consumed” in
performance of work
“Laborers” include engineers, architect, surveyors and others providing
incidental services. (See AIA A312-1984, Standard Form Bond, ¶ 15.1)
Labor includes “field supervisors”
– U.S. for Use and Benefit of Olson v. W.H. Cates Const. Co., Inc., 972 F.2d 987, 990 (8th
Cir. 1992) (holding that a contractor's unpaid project manager who provided
supervisory services on site was a "laborer" within the protection of the Miller Act,
even though not performing a job listed in the labor)
– CM firms generally not covered
– Employee leasing services generally not covered
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Tri-State Employment Services, Inc. v. Mountbatten Sur. Co., Inc., 99 N.Y.2d 476 (2003) (a "employee leasing
service" had no right to recover for its unpaid labor under a public contractor's payment bond because it was a
mere "provider of administrative and human resources services" that exercise no direction or control over the
work performed by its "employees" on site)
– Executive home office positions (above level of “field supervision”) not covered
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Types of Labor and Material Covered (Cont’d)
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Payment bond liability for “indirect wage liabilities”
– Prevailing wage penalties
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Board v. Eurostyle, Inc., 998 S.W.2d 810 (Mo. Ct. App. S.D. 1999) (surety was held liable for double wage penalty
imposed under Missouri's prevailing wage statute); but see North Marion School Dist. #15 v. Acstar Ins. Co., 205
Or. App. 484, 136 P.3d 42 (2006) (payment bond surety not liable to unpaid laborers for statutory damages and
penalties for late payment of wages)
– Unpaid withheld taxes
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Island Ins. Co., Ltd. v. Hawaiian Foliage & Landscape, Inc., 288 F.3d 1161 (9th Cir. 2002) (payment bond surety
liable to federal and state governments for unpaid employment taxes owed by the defaulting bond principal
because, even though those governmental bodies were not named obligees in the bond, because they clearly
were intended third-party beneficiaries)
– Unpaid withheld fringe benefit contributions
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Forsberg v. Bovis Lend Lease, Inc., 2008 UT App 146 (Utah Ct. App. 2008) (allowing recovery under a payment
bond for unpaid fringe benefits owed to union-related trusts as constituting payment for “labor” under the
applicable payment bond statute); Hartford Fire Ins. Co. v. Trustees of Const. Industry, 125 Nev. 16, 208 P.3d 884
(2009) (allowing recovery of unpaid fringe benefits because the trust “stood in the shoes” of the workers); but
see Trustees Of Sheet Metal Workers' Local Union No. 17 v. U.S. Fire Ins. Co. (2009) (denying recovery against a
payment bond for unpaid union benefit contributions because the bond provided coverage only for providers of
labor and material who had a direct contract with the contractor).
ERISA generally not interpreted to preclude fringe benefit claims.
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Types of Labor and Material Covered (Cont’d)
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Fuel, tires, parts, tools, form work, transportation, food and lodging
Reasonable value of rental equipment generally covered
– Larson v. Martin, 2006 WL 3437602 (D.N.D. 2006), aff'd, 532 F.3d 724 (8th Cir. 2008)
(subcontractor not permitted to recover payment from surety for idle equipment and
operators on project site before execution of the bonds).
– Payment bond sureties scrutinize lease-to-own arrangements.
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See King Consultants, Inc. v. Bee Equipment Sales, Inc., 2003 WL 22351805 (Tex. App. Fort Worth 2003) (rejecting
equipment rental claim on bond, where the equipment was leased under a "lease with purchase option" construed
by the court to be a conditional sale of capital equipment not covered by the payment bond).
– Most widely used equipment rate manuals for contractor-owned equipment are (1)
Construction Equipment Ownership and Operating Expense Schedule published by the
United States Army Corps of Engineers and (2) Rental Rate Bluebook published
privately by Data Quest Incorporated
o
Insurance premiums generally not covered.
– Some Little Miller Acts expressly provide coverage for insurance premiums.
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See Minn. Stat. Ann. § 574.26 (2000); Iowa Code § 573.1
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Types of Labor and Material Covered (Cont’d)
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Lost Profits for First-Tier Subcontractors
– Lost profits for breach of contract and other foreseeable economic damages flowing
from prime contractor’s breach? Maybe…
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See Taylor Const. Inc. v. ABT Service Corp., Inc., 163 F.3d 1119 (9th Cir. 1998) (subcontractor, under a cost-plus
guaranteed maximum price subcontract that contained a clause granting 50% of savings to the subcontractor as
additional profit, could recover the unpaid savings from the payment bond surety)
Downey, Inc. v. Bradley Center Corp., 188 Wis. 2d 435, 524 N.W.2d 915 (Ct. App. 1994) (lost profits suffered on
unrelated project were recoverable under common-law payment bond for the reason that consequential damages
resulting from delayed performance were reasonably foreseeable).
But see Sloan Const. Co. v. American Renovation and Const. Co., 313 F. Supp. 2d 24 (D.P.R. 2004) (a Miller Act
payment bond surety was not liable for lost profit damages arising out of the alleged breach on an obligation to
award a subcontract, because a Miller Act payment bond provided coverage only for persons owed payment for
having furnished labor and materials); see also Gals, Inc. v. Gemma Const. Co., Inc., 784 N.Y.S.2d 51 (1st Dep't
2004) (language of payment bond covered only labor performed at the site and materials and supplies actually
used at the site, and did not cover lost profits).
– Lost profits not recoverable by Second-Tier Subcontractors and Suppliers
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See Vaughn Excavating and Const., Inc. v. P.S. Cook Co., 981 P.2d 485 (Wyo. 1999) (payment bond surety under
state "Little Miller" Act held not liable to supplier for payment of lost profits and contractual economic damages—
a 10% late payment fee, 2% monthly interest and attorney's fees)
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Types of Labor and Material Covered (Cont’d)
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Delay and Acceleration Damages Generally Recoverable
– Compensable delay generally deemed to be part of true cost of work
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Consolidated Elec. & Mechanicals, Inc. v. Biggs General Contracting, Inc., 167 F.3d 432, 434-435 (8th Cir. 1999)
(Miller Act payment bond surety liable for subcontractor's delay damages caused by government because the
contractor and surety could pursue recovery from the government); see also Metric Elec., Inc. v. Enviroserve, Inc.,
301 F.Supp.2d 56 (D. Mass. 2003).
U.S. for Use and Benefit of T.M.S. Mechanical Contractors, Inc. v. Millers Mut. Fire Ins. Co. of Texas, 942 F.2d 946
(5th Cir. 1991) (subcontractor allowed to recover its increased labor and material costs due to contractor's delay)
Lighting & Power Services, Inc. v. Roberts, 354 F.3d 817, 823 (8th Cir. 2004) (allowing a subcontractor to recover
delay damages using the "total cost" damage measure and recognizing that under the Miller Act, a subcontractor
can recover additional expenses incurred because of delay regardless of the fault of the general contractor).
Lexicon, Inc. v. Safeco Ins. Co. of America, Inc., 436 F.3d 662, 2006 FED App. 0053P (6th Cir. 2006) (surety held
liable for increased labor and material costs due to delay because costs were necessary for contract completion)
See also Fisk Elec. Co. v. Travelers Cas. and Sur. Co., 2009 WL 196032 (S.D. Fla. 2009) (recognizing the right of a
subcontractor to recover costs incurred due to delay attributable to issuance of thousands of changes).
– Time-related claims for acceleration generally recoverable
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Tremack Co. v. Homestead Paving Co., 582 So. 2d 26 (Fla. Dist. Ct. App. 3d Dist. 1991) (payment bond surety liable
for costs due to acceleration of the project schedule).
But see Samuel Grossi & Sons, Inc. v. U.S. Fidelity & Guar. Co., 2006 WL 3307465 (Pa. C.P. 2006) (subcontractor's
acceleration costs constitute delay damages and thus are not recoverable under a payment bond).
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Types of Labor and Material Covered (Cont’d)
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Tort damages due to prime contractor’s conduct generally not
recoverable
– Rarely, bond expressly covers damages caused by negligence
– Surety not liable for punitive damages against prime contractor
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C & I Steel, LLC v. Travelers Cas. and Sur. Co. Of America, 70 Mass. App. Ct. 653 (2007) (holding that a payment
bond surety was not liable for bad faith punitive damages awarded by an arbitrator against its bond principal).
– Bad-faith claims made directly against surety, not under bond
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U.S. ex rel. SimplexGrinnell, LP v. Aegis Ins. Co., 2009 WL 90233 (M.D. Pa. 2009) (holding that a payment bond
surety was not liable under Pennsylvania's bad faith statute because a bond is not an "insurance policy")
Missouri Dept. Of Transp., ex rel. PR Developers, Inc. v. Safeco Ins. Co. Of America, 2002 WL 1968264 (Mo. Ct. App.
E.D. 2002) (payment bond surety which refused to pay a delay claim of $1.6 million in deference to its principal,
was not liable for punitive damages because it was not guilty of "vexatious refusal to pay").
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Types of Labor and Material Covered (Cont’d)
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Prejudgment interest generally allowable
– Federal Miller Act silent (“sums justly due”), but most circuits approve
– Some Little Miller Acts expressly provide interest
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See, e.g., Cal. Civ. Code § 3250; Colo. Rev. Stat. Ann. § 38-26-06; Conn. Gen. Stat. Ann. § 49-42(a); Or. Rev. Stat.
742.061; Roman Mosaic and Tile Co. v. Thomas P. Carney, Inc., 1999 PA Super 73 (Pa. Super. Ct. 1999) (prejudgment
interest awarded on subcontractor claim against payment bond surety); but see Vaughn Excavating and Const.,
Inc. v. P.S. Cook Co., 981 P.2d 485 (Wyo. 1999) (payment bond did not cover supplier's claim for interest)
– Legal rate of interest only; no contractual service charges.
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e.g., New York, Wyoming, Pennsylvania, Colorado
– Federal and State Prompt Payment Penalties
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Washington Intern. Ins. Co. v. Superior Court (G.K. Backlund, Inc.), 62 Cal. App. 4th 981 (1998) (payment bond
surety liable for interest penalty under California Prompt Payment Act where statutory provisions of Prompt
Payment Act were construed to be incorporated into the statutory bond); but see U.S. ex rel. Virginia Beach
Mechanical Services, Inc. v. SAMCO Const. Co., 39 F. Supp. 2d 661 (E.D. Va. 1999) (holding that the Prompt
Payment Act does not provide an independent basis for recovery under Miller Act bond);
– Surety liability generally runs from date of demand for payment upon surety and
surety’s refusal to pay, rather than date payment originally due
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But see John W. Egan Co., Inc. v. Major Const. Management Corp., 46 Mass. App. Ct. 643 (1999) (holding
prejudgment due from earlier date of contractor default).
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Types of Labor and Material Covered (Cont’d)
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Attorney’s Fees
– Not expressly recoverable under Miller Act
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F. D. Rich Co., Inc. v. U. S. for Use of Indus. Lumber Co., Inc., 417 U.S. 116 (1974)
– Fees may be recovered if there is fee provision between claimant and prime contractor
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U.S. ex rel. Maddux Supply Co. v. St. Paul Fire & Marine Ins. Co., 86 F.3d 332, 336 (4th Cir. 1996) (attorney's fees
recoverable under Miller Act payment bond where a contract between the bond principal and claimant provides
for recovery of attorney's fees)
U.S. ex rel. SCCB, Inc. v. P. Browne & Associates, Inc., 751 F. Supp. 2d 813 (M.D. N.C. 2010) (granting attorney's fees
to a Miller Act claimant where the sub-subcontract authorized recovery of attorney's fees); U.S. ex rel.
Thyssenkrupp Safway, Inc. v. Tessa Structures, LLC, 2011 WL 1627311 (E.D. Va. 2011) (same result).
– Many Little Miller Acts permit fee awards
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See, e.g., Ariz. Rev. Stat. Ann. § 34-222-F; Cal. Civ. Code §§ 3248(b), 3250; Conn. Gen. Stat. Ann. § 49-42(a); Fla.
Stat. Ann. §§ 255.05, 627.756; La. Rev. Stat. Ann. § 38:2246; Mass. Gen. Laws Ann. ch. 49, § 29; Minn. Stat. Ann. §
574.26; Miss. Code Ann. § 31-5-57; N.Y. State Fin. Law § 137.4(c); Or. Rev. Stat. § 742.061; Tex. Gov't Code Ann. §
2253.074; Utah Code Ann. § 63-56-38(5). See also In re Grubbs Const. Co., 306 B.R. 372 (Bankr. M.D. Fla. 2004)
(allowing attorney’s fees to a payment bond claimant under a Florida statute permitting "the prevailing party" to
recover reasonable attorney’s fees in any action brought to enforce a claim against a payment bond)
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Types of Labor and Material Covered (Cont’d)
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Offsite materials covered
Diverted materials covered
– Claimant must only prove material furnished in “the good faith belief” or “reasonable
expectation” material intended for project.
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U.S. ex rel. Thyssenkrupp Safway, Inc. v. Tessa Structures, LLC, 2011 WL 1627311 (E.D. Va. 2011) (upholding the
claim of an unpaid supplier who reasonably believed in good faith that its materials were incorporated into or used
on the bonded project).
Advanced Kiosks v. LM Holdings, LLC, 25 Mass. L. Rptr. 357, 2009 WL 1448948 (Mass. Super. Ct. 2009) (holding
that a product supplier could recover under a payment bond by proving that his product had been “furnished by
virtue of a contract,” without proving that the product actually was incorporated into the structure).
State ex rel. Solsbury Hill, LLC v. Liberty Mut. Ins. Co., 2012-NMCA-032, 273 P.3d 1 (N.M. Ct. App. 2011) (requiring a
supplier seeking recovery under the New Mexico Little Miller Act to prove only that it had a reasonable good faith
belief, as reflected in its invoices, that materials it supplied were used in the prosecution of the work under the
bonded contract).
Bethlehem Steel Corp. v. U.S. Fidelity and Guar. Co., 193 A.D.2d 1058, 598 N.Y.S.2d 873 (4th Dep't 1993) (holding
steel supplier needed to establish only that it provided "material used or reasonably required for use in the
performance of" the prime construction contract.)
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Types of Labor and Material Covered (Cont’d)
o
Diverted materials OK (Cont’d)
– Claimant must only prove material furnished in “the good faith belief” or “reasonable
expectation” material intended for project.
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U.S. for Use and Benefit of Dragone Bros. Inc. v. Moniaros Contracting Corp., 882 F. Supp. 1267, 40 Cont. Cas. Fed.
(CCH) ¶76779 (E.D. N.Y. 1995) (good faith delivery to site sufficient).
But see Trestle & Tower Engineering, Inc. v. Star Ins. Co., 13 F. Supp. 2d 1166 (D. Kan. 1998) (materials or supplies
stolen or converted after delivery not recoverable under payment bond).
Farmer's Union Cent. Exchange, Inc. v. Reliance Ins. Co., 675 F. Supp. 1534 (D.N.D. 1987) (suppliers of bulk asphaltic
oil products to central locations from which the products were indiscriminately used in performance of both
bonded and unbonded contracts, were unable to furnish evidence that any of the products were used solely on a
given bonded project and thus were unable to recover from the payment bond surety).
Graham Architectural Products Corp. v. St. Paul Mercury Ins. Co., 303 F. Supp. 2d 274 (E.D. N.Y. 2004) (though court
recognized liberal “good faith” standard, bond claim of window supplier/fabricator denied when
supplier/fabricator withheld specialty manufactured goods absent COD payment and surety bought from another
source)
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Miller and Little Miller Acts:
Notice Requirements
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Little Miller Act notice requirements generally conform to Miller Act with
some local variations.
Common law reflects both “strict notice” requirements, with trend to
favor enforcement unless improper notice is “prejudicial”
Notice must be given by claimant without privity with prime contractor
within 90 days from the last date claimant furnished labor or materials.
o
Timing of notice strictly construed
– See Brer-Four Transp. Corp. v. Zurich American Ins. Co., 913 N.Y.S.2d 109 (2d Dep't 2010) (denying a subsubcontractor's statutory payment bond claim due to failure to give timely required notice)
– Precision Development of Chappaqua, Inc. v. Hartford Fire Ins. Co., 809 N.Y.S.2d 483 (Sup 2005) (denying a secondtier subcontractor's bond claim because the subcontractor had failed to give the bond principal notice of its claims
within the 120-day notice period allowed by statute)
o
Notice must be received (not just mailed) within 90-day period.
– See U.S. for Use and Ben. of B & R, Inc. v. Donald Lane Const., 19 F. Supp. 2d 217 (D. Del. 1998) (mailing of notice
within 90 days insufficient); See also Pepperburn's Insulation, Inc. v. Artco Corp., 970 F.2d 1340 (4th Cir. 1992)
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Notice must be given by claimant without privity with prime contractor
within 90 days from the last date claimant furnished labor or materials
(cont’d)
o
Little Miller Acts generally require 90 day notice, but vary from 60 to 180 days
– Electrical Specialties, Inc. v. Siemens Building Technologies, Inc., 837 N.E.2d 1052 (Ind. Ct. App. 2005) (construing
the Indiana "Little Miller" Act to require filing of claim within 60 days after "the last material is provided or the last
labor or service is performed" by anyone on the project)
– Minnesota, New York, Connecticut and North Carolina = 180 days
o
Some states require two notices from lower-tier claimants
– See, e.g., Nev. Rev. Stat. § 339.035 (requiring first notice within 30 days after furnishing first item of labor or
material, and a second notice 90 days after furnishing the last item of labor or material).
– See also W.T. Andrew Co., Inc. v. Mid-State Sur. Corp., 221 Mich. App. 438 (1998) (holding that under Michigan's
"Little Miller" Act, a supplier required to provide two notices—the first notice 30 days after furnishing the first item
of labor or material and the second notice within 90 days after furnishing the last labor or materials—and a supplier
that failed to provide the first notice was precluded from pursuing a statutory payment bond claim).
o
What happens if claimant performs work (or has a series of deliveries of materials) more
than 90 days apart?
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Notice must be given by claimant without privity with prime contractor
within 90 days from the last date claimant furnished labor or materials
(cont’d)
o
Notice period not extended by performance of repair/warranty work
– U.S. For Use and Benefit of Rocking D&R Ranch, Inc. v. James Talcott Const., Inc., 2007 WL 4334170 (D. Mont. 2007)
(concluding that a payment bond claimant's HVAC system balancing work was part of the original contract rather
than repair work, and ruling the 90-day notice deadline ran from the date that the balancing work was completed)
o
o
o

Notice period not extended by furnishing items not required by contract
Notice period not extended by furnishing items not included in claim
Early claim notice may generally be given, but limited to unpaid furnished work
Notice must state amount claimed with “substantial accuracy” and the
name of the party to whom labor or materials was provided
– Safety Signs, LLC v. Niles-Wiese Const. Co., Inc., 820 N.W.2d 854 (Minn. Ct. App. 2012), aff'd, 840 N.W.2d 34 (Minn.
2013) (dismissing a subcontractor's statutory payment bond claim, where notice of claim failed to comply with
strict statutory requirements)
– CTI/DC, Inc. v. Selective Ins. Co. of America, 271 F. Supp. 2d 758 (D. Md. 2003), aff'd, 392 F.3d 114 (4th Cir. 2004)
(supplier's demand letter to contractor did not constitute required written notice)
– Bridgeport Inc. v. Rinker Materials Corp., 849 So. 2d 1193 (Fla. Dist. Ct. App. 4th Dist. 2003) (lien notice did not
constitute proper payment bond claim notice)
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Notice must be served “by any means that provides written, third-party
verification of delivery to the contractor.”
o
Oral notice insufficent.
– Pittsburgh Builder Supply Co. v. Westmoreland Const. Co., 702 F. Supp. 106 (W.D. Pa. 1989) (holding that actual, but
not written, notice was insufficient to satisfy the 90-day notice requirement).
o
Letter via U.S. Mail insufficent because no “third party verification.”
– U.S. ex rel. Viking Disposal Corp. v. W. Sur. Co., 2007 WL 5287926 (W.D. Wis. 2007)
o
E-mail notice deemed sufficient.
– United States v. Fid. & Deposit Co. of Maryland, 2013 WL 4829051 (D. Md. Sept. 9, 2013)
(distributor forwarded copies of open invoices and demand letters sent to subcontractor to prime
contractor via e-mail)

Notice must expressly or impliedly inform prime contractor that claimant
is looking to it or surety for payment.
o
Bowden v. U.S. for Use of Malloy (9th Cir. 1956) 239 F.2d 572, 577; see also U.S. ex rel.
Bailey v. Freethy (9th Cir. 1972) 469 F.2d 1348, 1351 (following phrase: “[w]e would
appreciate any help you may be able to give us in bringing this account up to date…”
found in the supplier’s letter to prime contractor coupled with exact balance sufficient to
infer that the supplier was looking to prime contractor for payment)
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Miller and Little Miller Acts:
Lawsuit to Enforce Bond Claim
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
Time for Filing Lawsuit on the Bond
o
o
The statute of limitations contained in the Miller Act provides that a suit must be brought
within one year after the last day on which materials were supplied or labor was
performed.
Little Miller Acts of 21 states and D.C. follow Miller Act; other states have shorter periods
– See W. F. Hayward Co. v. Transamerica Ins. Co., 16 Cal. App. 4th 1101 (2d Dist. 1993) (holding statutory payment
bond claim barred because suit was not commenced within six months after the 90-day period in which stop
notices may be filed); Comtel Technologies, Inc. v. Paul H. Schwendener, Inc., 710 F. Supp. 2d 704 (N.D. Ill. 2010)
(denying a subcontractor's payment bond claim because it was not commenced within six months after the owner's
constructive acceptance of the project).
o
Some states commence limitation period from date of “final payment,” “date of
completion,” date of “final settlement,” or date of “completion and acceptance” or date
of issuance of COO
– See Inner City Drywall Corp. v. Reliance Ins. Co. of New York, 694 N.Y.S.2d 31 (1st Dep't 1999) (one-year period
commenced on date certificate of occupancy was issued and later remedial work did not toll the running of the
time)
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Time for Filing Lawsuit on the Bond (Cont’d)
o
Suit limitation period not extended by performance of repair/warranty work
– U.S. ex rel. Miller Proctor Nickolas, Inc. v. Lumbermens Mut. Cas. Co., 2009 WL 962273 (E.D. N.Y. 2009) (holding that
the one year period for commencing suit against the surety's payment bond was not tolled or restarted when the
contractor returned to the project a year later to perform some training and testing at no cost to the owner
following receipt of a list of complaints about the work)
– Dunn Const., L.L.C. v. Gray Ins. Co., 2010 WL 231742 (W.D. La. 2010)) (holding that a subcontractor's one-year
statutory period for commencing a payment bond suit was not tolled by work to correct punch list items); but see
Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33 (2d Cir. 2009) (holding that punch list work was part of the
contractor's original undertaking, and thus the one year period for commencement of suit did not begin until that
punch list work was completed)
– See also U.S. v. Hartford Fire Ins. Co., 2010 WL 5026950 (E.D. Va. 2010) (holding that a claimant's replacement of
defective sidewalk did not restart the Miller Act's one-year suit commencement limitation period).
o
Claimants must wait 90-days after they last furnished labor or material to the project
before they can pursue a civil action against the Miller Act payment bond. 40 U.S.C. §
3133(b)(2).
– The 90-day period is considered a reasonable amount of time for money to flow down from the owner and the
general contractor to the subcontractor performing the work.
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Miller and Little Miller Acts:
Final Note about Payment Bonds
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Wave of the future?
o
o
o
California Civil Code Section 8700 et seq.
Owner must post project security for prime contractor when contract
price is above $5 million (TI projects - $1 million+).
Security may take 3 forms:
– Bond of 15% to 25% of contract price
– Irrevocable letter of credit of 15% - 25% of contract price
– Escrow account with 15% - 25% of contract price
`
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