Waiving Bond Claim Rights Under The Miller Act

Are You Waiving Your Bond Claim Rights Under The Miller Act?

If you furnish to a federal construction project, and your contract includes a provision for claim resolution outside of the Miller Act, are you prohibited from pursing a claim under the Miller Act? Are you waiving your rights? Short answer: No. Unless

Miller Act Statute

The statute for federal projects is relatively straightforward and applies to all states; meaning unlike state statutes which vary, federal statute is the same across the board. U.S. Federal projects in foreign lands may also fall under the protection of the Miller Act.  Those furnishing to a federal project are not required to serve a preliminary notice, but a bond claim should be served with 90 days after the date of last furnishing, and suit should be commenced within one year after the date of last furnishing.

Typically, the general contractor is required to obtain a payment bond if the construction contract exceeds $100,000. And, would-be claimants can request a certified copy of the payment bond from the contracting agency.

3133. Rights of persons furnishing labor or material

(a) Right of Person Furnishing Labor or Material to Copy of Bond. – The department secretary or agency head of the contracting agency shall furnish a certified copy of a payment bond and the contract for which it was given to any person applying for a copy who submits an affidavit that the person has supplied labor or material for work described in the contract and payment for the work has not been made or that the person is being sued on the bond…

Waiving Rights in a Contract

If your contract calls for alternative dispute resolution or waives rights in lieu of action under the Miller Act, does this mean you have lost your rights under the Miller Act?

This is a hot topic in construction: waiving rights to mechanic’s liens and bond claims. Some statutes clearly define whether rights are waived or if the waiver of rights is enforceable, while others are clear as mud. Fortunately, for federal projects, it’s not overly complicated. Yes, rights can be waived; however, the waiver must be in writing and it can’t be executed until after the claimant has completed furnishing.

3133. Rights of persons furnishing labor or material

(c) Waiver of Right to Civil Action. – A waiver of the right to bring a civil action on a payment bond required under this subchapter is void unless the waiver is-

(1) in writing;

(2) signed by the person whose right is waived; and

(3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.

Earlier I said that federal statute is the same in all states, and while this is true, the courts hearing federal cases may not make the same decisions. So, when I say “Yes, rights can be waived” I’m taking statute at its word – no gray area. But, as you know, in construction credit, there is a LOT of gray area.

Christopher M. Horton, associate with Smith Currie, recently wrote an article, Does the Miller Act Trump Subcontract Dispute Provisions? In his article, Horton discusses a few examples of different states and their stance on whether a contract can prevent someone from pursuing a Miller Act claim.

“…[C]ourts have considered whether subcontract provisions requiring exhaustion of dispute procedures prior to initiating a Miller Act suit conflicts with the waiver provisions of the Miller Act. Only a few federal courts have addressed this issue… (D.C., Maryland, Nebraska, New Jersey, Pennsylvania, Virginia), have found that such provisions are unenforceable and do not require dismissal or stay of a Miller Action lawsuit.

A minority of courts (Louisiana, California, and Hawaii) have upheld dispute exhaustion provisions and entered dismissals or stays of Miller Act. Contrary to the decisions referenced above, the courts rendering these decisions based their rulings upon the fact that the provisions at issue included express language that required a stay for Miller Act claims pending exhaustion of the dispute procedures…. The subcontractor’s Miller Act remedies remained intact pending exhaustion of the contractual dispute procedures.”

OK, so, perhaps my statement about federal statute being clear was a tiny bit inaccurate — turns out, it can get quite muddy. Though, it seems, at least based on Horton’s article, that courts may allow claimants to pursue a Miller Act claim even if alternative dispute options are identified in the contract.

Best advice? Before you sign the contract, carefully review it with legal counsel. Do not blindly sign a contract, assuming it will all pan out.

Most Recent Resources

Blog

Will Safe Harbor Ever Exist for Florida UCC Filings? Zero Tolerance

Safe Harbor couldn't save this UCC. Florida's 'zero tolerance' policy means you must strictly comply with Article 9-503(a). Learn more here!
Read More
white paper
White Paper

NCS Credit Lien Index 2022 Q3

The Lien Index increased 4 points in Q3 2022, an 11% climb over Q2 2022. As expected, Q3 mechanic's lien activity rose 11% over Q2, and activity remained lower than Q1, which peaked at 43. We anticipate the Index will increase 2%-5% in Q4. Download the full report for details.

Read More
live webinars
Live Webinar

Subchapter V Bankruptcies and Impacts on Trade Creditors (1 hr CLE credit)

New Subchapter V was added to the Bankruptcy Code in 2020 to create a more efficient and economical process for small business debtors to reorganize. But the benefits to a Subchapter V debtor come at a cost to trade creditors.
Read More