A Guide to Federal Contract Bonds
This page explores the Miller Act, a legal regulation that applies to federal construction projects. For more information about specific types of contract surety bonds, click here.
There’s no question that the bonding process can be tedious, time-consuming and frustrating for contractors, especially those new to the industry. But with a thorough understanding of how bonding works and why it’s required, contractors will be more informed the next time they need a surety bond for a federal construction contract.
Contractors who intend to work on federally funded construction projects that cost more than $100,000 must post bonds before work can begin. This requirement stems from the Miller Act, which was established in 1935 and amended by the Federal Acquisition Streamlining Act of 1994. According to the U.S. General Services Administration Public Building Service, “The Miller Act requires that prime contractors for the construction, alteration, or repair of Federal buildings furnish a bond for contracts in excess of $100,000.”
To put it simply, the Miller Act and its bond requirement were put in place to protect the federal government, as well as taxpayers, from financial and other losses in the event of a contractor’s contractual default, participation in fraud, or other lacking performance.
With any construction project, a contractor’s lack of performance can cause severe delays and unexpected expenses in the building process. With a government-sanctioned construction project, these delays and expenses can disrupt the governmental procurement process. Surety underwriters primarily base performance bond approval on contractors’ past performance. As such, unqualified construction professionals can be naturally eliminated from consideration for large projects that require a great deal of financial and professional accountability. If a contractor does fail to complete a project according to contractual terms, the project developer can make a claim on the bond, and the surety could be forced to pay a new contractor to finish the project.
Payment surety bonds guarantee that contractors will pay those who provide labor, materials, equipment or supplies throughout a project. The U.S. General Services Administration Public Building Service explains, “Failure by a contractor to pay suppliers and subcontractors gives such suppliers and subcontractors the right to sue the contractor in U.S. District Court in the name of the United States.” If a valid claim is brought against a payment bond, the surety can be forced to pay the owed monies up to the bond’s full amount.
Little Miller Acts
As time has progressed, individual states have adopted their own versions of the federal law by enacting what are known as “Little Miller Acts.” Like the original Miller Act, these Little Miller Acts require that prime contractors post performance and/or payment surety bonds guaranteeing their performance on government-funded construction projects. The bonding requirements are enforced for state projects rather than federal projects.
Oftentimes Little Miller Acts establish a project threshold that’s much lower than $100,000. For example, in Alabama, performance bonds issued for 100% of the contract price are required for all public works projects costing more than $50,000, and payment bonds issued for 50% of the contract price are required for all public works projects costing more than $50,000.
Little Miller Act contract bond requirements vary by state, so contractors who need bond insurance should verify all paperwork and bond amounts with the government agency managing the project before contacting a surety bond company.
Get A Surety Bond For A Federal Construction Project
If you’re a contractor involved in a government-funded construction project and you need a contract bond, you can contact an expert surety specialist immediately by calling 1 (800) 308-4358 between 7 a.m. and 7 p.m. Monday through Friday. Or you can submit an online contact form 24/7, and a surety specialist will contact you ASAP.
SuretyBonds.com has a history of helping contractors get bonded quickly, easily and accurately. We even have a contract bond specialist with more than 25 years of experience who would love to assist you with your bonding needs.