A payment bond, in the construction context, is a form of security to ensure that subcontractors and suppliers on a project are paid. Typically, a third party surety provides this bond. On public projects, payment bonds are extremely important, due to the fact that government property is not subject to mechanic’s liens. In order to secure a recovery on such a project, the unpaid subcontractor must rely upon the federal Miller Act or the Virginia Little Miller Act.
The Miller Act
Miller Act payment bonds are for “the protection of all persons supplying labor and material in the prosecution of the work.” However, “all persons” can be a bit misleading. Under the federal Miller Act, subcontractors or suppliers who deal directly with the prime contractor (“first tier claimants”) are covered under the bond. Those contractors who have supplied labor or materials directly to a subcontractor (“second tier claimants”) are also protected. Unfortunately, all other subcontractors and suppliers are not afforded such protection.
All claimants must also wait 90 days after they last furnished labor or material to the project before they can pursue claim under the payment bond. After this mandatory waiting period, claimants have one (1) year to file a lawsuit on the bond from the date it last supplied labor or materials. Accordingly, there is a nine (9) month window to file your claim. Second tier claimants, however, are also required to provide written notice of their bond claim to the prime contractor within ninety (90) days from the date it last supplied labor or materials for which a claim is made. The prime contractor must actually receive the notice within this time frame.
Just as with mechanic’s liens, contractors can waive their right to make a claim under a payment bond. Contractors should be on the lookout for such waivers, and take all reasonable steps to preserve their claims.
The Little Miller Act
As you may have guessed, Virginia’s Little Miller Act is modeled after the Miller Act. There are a few subtle differences however. For example, there is no mandatory ninety (90) day waiting period for second tier claimants to file suit. Second tier claimants are, however, required to provide written notice of their claim within ninety (90) days from the date it last supplied labor or materials for which a claim is made. In practice, a second tier claimant can file its lawsuit the same day it provides this notice. First tier claimants on the other hand are still subject to a ninety (90) day waiting period, but are not required to provide notice.
As with the federal Miller Act, all claimants have one (1) year to file a lawsuit on the bond from the date it last supplied labor or materials. “Notice to the contractor shall be served by registered or certified mail, postage prepaid, in an envelope addressed to such contractor at any place where his office is regularly maintained for the transaction of business.” Va. Code § 2.2-4341(B).