The Miller Act, 40 U.S.C. §§ 3131- 3134, requires a contractor (“Principal”) on a federal project to post two bonds: a performance bond and a labor and material payment bond to guarantee completion of the construction according to the plans and specifications in the contract and payment of laborers, subcontractors, and material suppliers. The Miller Act was amended in 2010, raising the applicable threshold amount of the contract to $150,000.00 from $100,000.00.
If the Principal encounters financial problems during the project, the Miller Act surety (“Surety”) is often called upon to finance completion of the bonded federal contract either by directly advancing money to the Principal or indirectly by paying the subcontractors and suppliers. In the event the Surety suffers financial loss as a result of the Principal’s failure to meet its contractual obligations, the Surety will immediately look to mitigate its loss by enforcement of its equitable subrogation rights or through contractual rights assigned from the Principal to the Surety pursuant to the indemnity agreement.
The Miller Act is implemented through the Federal Acquisition Regulations (the “FAR”). The FAR is the principal set of rules and regulations issued by federal agencies which govern the process through which the federal government (“Government”) purchases or acquires goods and services. The FAR is codified in Title 48 of the U.S. Code of Federal Regulations and although not statutory, courts have held that the FAR has the force of law and is binding on the government and contractors.