Federally Funded Does Not Mean Federal Project
“The U.S. Government funded this construction project, so it’s a federal project, right?”
This is a frequently asked question and the answer is: not necessarily.
Project type, as it pertains to determining mechanic’s lien or bond claim rights, is dictated by project ownership, not funding. In other words, who owns the property?
In general, construction projects are either private, public or federal; however, there are instances where a project may be a hybrid, such as private property leased by a public entity.
Project Type: Private, Public or Federal?
A private project is a private improvement contracted by a private entity, e.g. a person, company or corporation. A public project is an improvement of public works or building under formal contract made by any government authority, e.g. the state, county, city or political subdivision. And, a federal project is a contract for the construction, alteration or repair of any public building or public work of the United States.
Prime Contractor Says Project is Private, Subcontractor Says Project is Federal
In US v. Triangle Construction Co., Inc., Dist. Court, SD Mississippi 2018, the subcontractor, Metro Mechanical, Inc. (Metro) argued their right to claim under the Miller Act, because the construction project was federally funded.
Triangle Construction Co., Inc. (Triangle) contracted with Mississippi Portfolio Partners III, LP (Owner) for the improvement on four apartment complexes in Mississippi and obtained a payment bond from U.S. Specialty Insurance Company (Surety).
Triangle hired Metro to provide HVAC and plumbing renovations. When Triangle failed to pay Metro $150,555, Metro filed suit under the Miller Act.
Triangle contested the suit, stating the projects are private and the Miller Act doesn’t apply. Metro then argued the projects fall under the Miller Act because Triangle obtained payment bonds, and since payment bonds aren’t required on private projects, the project must be federal.
“And Metro suspects that the Projects are covered by the Miller Act because Triangle secured payment bonds for them. [Doc. 12, p. 3] Metro reasons that, because Mississippi law does not require a contractor on a private project to obtain a payment bond, and because such bonds can be costly, [Triangle] must have obtained payment bonds on the Projects to fulfill the Miller Act’s bond requirement.”
Interesting logic, right? Right. According to the court opinion, the Miller Act doesn’t define “public work for the Federal Government”, however, “…[a] federally-funded project is not necessarily a ‘public work’ under the Miller Act.”
The court further stated, the Miller Act would only apply if the Federal Government (or its agent) is a party to the construction contract.
Let’s review the parties involved in the contractual chain:
– Owner: Mississippi Portfolio Partners III, LP
– Prime Contractor: Triangle Construction Co., Inc.
– Subcontractor: Metro Mechanical, Inc.
– Surety: U.S. Specialty Insurance Company
The list does not include the Federal Government. The court’s final word: “It is undisputed that neither the Federal Government nor any of its agents was a party to any contract for work on the Projects. Indeed, Metro’s complaint confirms that the only parties to that contract were Triangle and Mississippi Portfolio Partners III, LP. [Doc. 1, ¶4] Under this standard, as under Mississippi Road Supply, the Miller Act is inapplicable.”
What Remedy Should Metro Have Pursued?
This case is a bit unique. Generally, securing mechanic’s lien rights is the remedy for private projects. However, because Triangle obtained payment bonds, Metro may have pursued a claim against the bond.
From The National Lien Digest | Bond Claims on Private Mississippi Projects
– Where a contractor gives a payment bond, providing payment protection to the full extent provided by public statute (Section 31-5-51), the payment bond will prevent liens from attaching to the property.
– It is recommended to also follow the procedures to protect your lien rights. The statute regarding the private payment bond is new and it is not clear how the courts will interpret the requirements.
– Generally, there is no statutory provision requiring a preliminary notice. Serving a non-statutory notice is recommended.
– Serve the bond claim notice in accordance with the terms and conditions of the payment or performance bond.
– Frequently, a bond claim notice is required within 90 days from last furnishing materials or services.
– When a payment bond is provided, file suit to enforce the bond claim in accordance with the terms and conditions of the payment bond. Frequently, suit is required within 1 year from last furnishing materials or services.
Projects to Watch Out For?
The Federal Government often funds projects for which they have no ownership interest. In those cases you must look to the state statute, or if there is no statute for private payment bonds, to the bond itself, for the terms and conditions of the bond.
As an example, the U.S. Department of Agriculture frequently provides funding to telephone companies for cable to be laid in rural areas. While the U.S. helps to fund the project, they typically have no ownership interest. Even though a payment bond may be available these private projects, displaying the USDA Rural Utilities Service on the bond heading, the Miller Act will not apply.
Another scenario would be where the U.S. Department of Housing and Urban Development funds a low-income housing project that is privately owned; HUD will typically appear on the payment bond heading, but the Miller Act would not apply.
Unsure of Project Type?
If you are unsure whether you would secure mechanic’s lien or bond claim rights, consider submitting the project to NCS for review or contact us with questions.