Protection For Payment On Federal Projects: Precision Required For Protection
North Carolina is blessed with numerous federally-owned facilities. These facilities are frequently the sites for construction projects, some of substantial proportion. Many subcontractors and material suppliers find themselves working on projects located in or on federal facilities and know the projects are exempt from state law lien protection but are protected by payment bonds.
WHEN ARE BONDS REQUIRED
Congress passed the statute commonly known as “The Miller Act” to protect subcontractors, laborers and suppliers working on construction projects on federally-owned property. The Act mandates that prime contractors who contract with a federal agency for construction, alteration or repair of public buildings or performing public work with a contract value exceeding $25,000.00 must obtain payment and performance bonds in order to protect both the government and those persons or companies supplying labor or materials to the prime contractor.
TIMELY DEMAND LETTER REQUIRED
The Miller Act is extremely technical, and failure to follow the letter of the law can result in the loss of a claim. If a company is providing materials or labor on or for a federal property, it is important for all records related to the project, including contracts, invoices and delivery tickets, to contain the project number or, at least, the precise identity of the building or project and the date of delivery or service. When the time comes to prove the claim, the few extra minutes required to enter this data could be the determining factors in whether or not the company is able to substantiate its bond claim.
If the prime contractor or first tier subcontractor fails to make payments on the project, the first deadline faced is the most critical. A letter must be sent to the prime contractor within 90 days of the last day on which supplies or labor were provided. The written notice must state “with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed.” The statute requires written notice which must “be served by mailing the same by registered mail, postage prepaid in an envelope addressed to the contractor at any place [the contractor] maintains an office or conducts his business, or his residence, or in any manner in which the United States marshal of the district in which the public improvement is situated is authorized by law to serve summons.” While the most effective method of delivery is the registered mail option set out in the statute, courts have upheld the use of certified mail, return receipt requested, inasmuch as that method provides written proof of delivery.
IS A LAWSUIT NECESSARY?
The Act provides that the prime contractor has 90 days in which to make payment to subcontractors and suppliers with the clock starting on the date on which the last supplies were delivered or labor performed. A lawsuit may not be brought until those 90 days have elapsed. A lawsuit must be brought within one year of the date of final performance. However, failure to make the proper notice within the first 90 days can and, likely will, defeat a bond claim.
If your company provides materials or labor for federal projects or if there is a chance it will in the future, it is important all employees who might have contact with the project are aware of the need to be detail- conscious. A successful Miller Act claim may hinge entirely on the accuracy of the record-keeping and the attention to detail in the initial demand letter. For further information on this topic and the issue of proper notice, contact your attorney.