Miller Act & Federal Contract Bonds — Performance, Payment & Bid Bonds

When a private contractor builds a federal building, a VA hospital, or a military base, the federal government cannot file a mechanic's lien against its own property if the contractor fails to pay subcontractors. For the acquisition rules governing federal contracts, see Federal Acquisition Regulation. This creates a significant problem: subcontractors and material suppliers have no security interest to enforce against federal land. The Miller Act (40 U.S.C. §§ 3131–3134) solves this by requiring every contractor on a federal construction contract exceeding $150,000 to obtain surety bonds — legal guarantees from an approved insurance company that (1) the contractor will complete the work, and (2) the contractor's subcontractors and suppliers will be paid, even if the prime contractor defaults.

Federal surety bonds are one of the most significant protections for small businesses engaged in federal contracting. A subcontractor on a $50 million federal construction project who isn't paid has no lien rights against the federal property — but they have statutory rights to make a claim directly on the payment bond, which must equal 100% of the contract price. The bond is their mechanic's lien substitute.

Current Law (2026)

Legal Authority

• 40 U.S.C. § 3131 — Bonds required: the government requires a contractor on a construction contract over $150,000 to provide (a) a performance bond — the contractor will perform the contract; and (b) a payment bond — the contractor will pay persons who perform labor or supply material in performing the contract; the government may (but is not required to) require bonds on construction contracts between $30,000 and $150,000
• 40 U.S.C. § 3132 — Waiver authority: a contracting officer may waive the requirement for bonds if it is impracticable to obtain a bond and is in the government's interest
• 40 U.S.C. § 3133 — Rights and remedies of payment bond claimants: a person who has furnished labor or material in carrying out a contract and has not received payment within 90 days after the day on which the person furnished the last labor or material may bring a civil action on the payment bond for the amount unpaid
• 40 U.S.C. § 3134 — Waiver of right to sue: payment bond rights cannot be waived in advance; any contract provision purporting to waive Miller Act rights is void
• 31 U.S.C. §§ 9301-9309 — Treasury's authority to approve sureties: Treasury publishes and maintains a list of approved surety companies (Circular 570) authorized to issue bonds on federal contracts; maximum bond amounts per surety are published and updated annually
• 48 C.F.R. §§ 28.000–28.313 — FAR Part 28 (Bonds and Insurance): the Federal Acquisition Regulation provisions implementing Miller Act requirements and bond procedures

The Three Types of Federal Contract Bonds

Performance Bond

A performance bond guarantees that the contractor will complete the work according to the contract terms. If the contractor defaults (abandons the project, becomes insolvent, or fails to perform), the surety company must either: (a) arrange for the contract to be completed by another contractor, (b) complete the contract itself using its own resources, or (c) pay the government the cost to complete the work up to the bond amount. The performance bond protects the government's interest in having the contracted work completed.

Required amount: Equal to 100% of the contract price at award. For fixed-price contracts, this means the full contract value. For cost-reimbursement contracts, the performance bond requirement may be structured differently.

When performance bonds are triggered: When the contractor materially defaults — typically when the contracting officer terminates the contract for default. The surety must be notified immediately; sureties have specific rights including the right to "takeover" the contract to prevent default termination. An experienced contractor-side lawyer will note that the government's obligation to notify the surety before termination is important — failure to do so can affect the surety's liability.

Payment Bond

A payment bond guarantees that subcontractors, suppliers, and laborers on the prime contract will be paid. This is the bond that substitutes for the mechanic's lien rights that don't exist on federal property. If the prime contractor fails to pay a subcontractor or supplier, that party can make a claim directly on the payment bond.

Required amount: Equal to 100% of the contract price.

Who can claim on a payment bond?

• First-tier claimants: subcontractors and suppliers who have a direct contract with the prime contractor
• Second-tier claimants: sub-subcontractors and suppliers who have a direct contract with a first-tier subcontractor
• Third-tier and beyond: generally NOT covered by the Miller Act (the protection extends only two tiers down)

Claim procedure: A claimant must provide written notice to the prime contractor within 90 days after the date on which the claimant last performed labor or last furnished material. This 90-day window is strictly enforced — failure to provide timely notice bars the claim on the bond. After notice, the claimant has one year from the last furnishing of labor or material to file a civil action in federal district court. No pre-suit demand or arbitration is required (though some bond forms may specify notice requirements).

What's covered: Labor performed, materials furnished, and in some circuits, equipment rentals directly used on the project. General overhead, lost profits on the unperformed portion of the contract, and bond premiums paid by a sub are generally not recoverable from the payment bond.

Bid Bond

A bid bond guarantees that if the bidder is awarded the contract, it will execute the contract and provide the required performance and payment bonds. The bid bond protects the government from a contractor who submits a low bid, wins the award, then refuses to accept the contract (leaving the government to award to a higher-priced bidder).

Typical amount: 20% of the bid amount, though the contracting officer may set a different amount.

Consequence of default on bid bond: If the awardee fails to execute the contract, the surety is liable for the difference between the winning bid and the next lowest acceptable bid (up to the bid bond amount). This makes bid bonds important for bid shopping prevention — a contractor cannot submit an unrealistically low bid and then walk away without financial consequence.

Treasury-Approved Sureties (31 U.S.C. §§ 9301-9309)

Not all insurance companies can issue bonds on federal contracts. The Treasury Department maintains a list of approved surety companies — published in Treasury Circular 570, updated annually — that are authorized to issue federal bonds and specifies the maximum bond amount each company can underwrite in any single transaction. A bond issued by a non-approved surety is legally ineffective on a federal contract.

Circular 570 is publicly available at fiscal.treasury.gov. Contractors should verify that their surety is listed and that the bond amount does not exceed the surety's listed limit before submitting bonds. If a surety loses its Circular 570 approval (due to financial problems), bonds already issued remain valid, but the surety cannot issue new federal bonds.

Alternatives to corporate sureties: Instead of a corporate surety, contractors may use:

• Individual sureties: A natural person who pledges their own assets. Individual sureties must demonstrate that their net worth exceeds the bond amount. Permitted under FAR 28.203 but rarely used for large contracts.
• Treasury securities: The contractor may deposit Treasury securities (T-bills, T-bonds) as collateral in lieu of a surety bond.

The "Little Miller Acts" — State Equivalents

Every state and the District of Columbia has enacted a "Little Miller Act" — a state-law analog to the federal Miller Act requiring performance and payment bonds on state-funded construction contracts. Thresholds, notice requirements, and claim procedures vary by state but follow a similar framework.

Key differences from the federal Miller Act:

• State thresholds vary from $10,000 to $150,000 or more
• Notice periods range from 45 to 120 days (different from the federal 90-day rule)
• Some states extend protection further down the subcontractor chain than the two-tier federal rule
• Venue is typically in state court (versus federal district court for federal Miller Act claims)
• Some states extend Miller Act-type protections to public-private partnerships (P3s) that are otherwise exempt from traditional public works requirements

How It Affects You

If you're a general contractor or prime contractor on federal construction projects: Miller Act bonds are a condition of your contract award — you cannot receive a federal construction contract over $150,000 without providing them. The cost of bonding (the bond premium, typically 0.5%–2% of the contract value depending on your company's financial strength and the surety's risk assessment) is a pre-bid cost you must build into your price. Stronger bonding capacity — meaning your surety will bond larger contracts — is a competitive advantage and a function of your company's financial health, track record, and working capital. If you use a subcontractor who subsequently fails and triggers a payment bond claim, you may face secondary liability even if you paid the sub — because some states impose contractor liability for underpaid sub-subcontractors in certain circumstances. For large projects, negotiate conditional payment clauses (pay-if-paid or pay-when-paid) carefully, as their enforceability on federally funded work varies by state.

If you're a subcontractor or material supplier on a federal project: The payment bond is your primary protection if the prime contractor fails to pay you. Know the 90-day notice deadline and treat it as absolute. If you have not been paid within 90 days of last furnishing labor or materials, send written notice to the prime contractor immediately — certified mail or personal delivery to create a documented record. Note that the notice goes to the prime contractor (not the surety), though notifying the surety of a potential claim is also prudent. Once you've provided timely notice, you have one year to file suit in federal district court. You do not need to sue the prime contractor separately — the Miller Act provides a direct right against the surety. Request a copy of the payment bond from the contracting officer early in the project (it's a public record); having the surety's name and bond number before a dispute arises makes everything easier if you later need to make a claim.

If you're an owner-developer using federal funding for a project: If your project is receiving federal funding (federal grants, HUD loans, CDBG funds), your funding agreement may require Miller Act bonds or equivalent protection even if the project is not a purely federal construction contract. Review your grant agreement's bonding requirements carefully — federal grantor agencies often impose Miller Act-equivalent bond requirements as a grant condition. For public housing authorities, school districts, and other public bodies using federal funds for capital projects, the applicable federal program's regulations determine bond requirements. Non-compliance with bond requirements can jeopardize your grant and expose you to False Claims Act liability if federal funds are at risk.

If you're a surety company or underwriter: Federal contract bonds are regulated by Treasury Circular 570. Maintaining Circular 570 approval requires meeting Treasury's financial strength criteria (admitted assets, policyholder surplus, net premium-to-surplus ratios). Annual updates to Circular 570 change the maximum single-bond amount each approved company can underwrite. Monitor your Circular 570 status and your underwriting limits carefully — taking bonds in excess of your listed limit is a violation and creates enforcement exposure. The SBA's Surety Bond Guarantee program (for small contractors who cannot independently obtain bonding) creates government-guaranteed bonds where the SBA reinsures 70%–90% of the surety's loss risk, expanding bonding access for small and emerging contractors.

State Variations

While federal Miller Act bonds are governed uniformly by federal law, the interaction with state law matters in several ways:

• State Little Miller Acts: Claims for federal projects are under the federal Miller Act; claims for state or local publicly funded projects are under the applicable state Little Miller Act. Know which law governs before you calculate your notice deadlines.
• Bond claim priority: On some federal projects, multiple bond claimants may compete for the bond proceeds if the total claims exceed the bond amount. Federal law governs priority.
• Public-private partnerships: Federal P3 projects may involve complex ownership structures; whether the Miller Act applies depends on whether the project is a "contract for the construction, alteration, or repair of any public building or public work of the Federal Government."
• State prevailing wage and lien law interaction: Even on federally funded projects subject to the Davis-Bacon Act (requiring payment of prevailing wages), workers' wage claims typically run through the payment bond, not state wage claims processes.

Recent Developments

• 2022 — SBA Surety Bond Guarantee program expansion: The Small Business Administration expanded its Surety Bond Guarantee program to cover non-construction federal contracts (not just construction), allowing small businesses to obtain bonded contracts in new areas such as services and supply.
• 2023 — Climate and infrastructure investment: The Infrastructure Investment and Jobs Act (IIJA) directed hundreds of billions of dollars to federal construction and grant-funded state construction projects, substantially increasing the volume of Miller Act and Little Miller Act bonds being issued. The surge in federal construction activity has created bonding capacity constraints for smaller surety companies.
• 2024-2025 — Subcontractor payment issues on large federal projects: Congress has continued to examine whether the two-tier protection of the Miller Act is adequate for modern construction projects with complex supply chains. Some proposals would extend Miller Act protection to third-tier subcontractors.
• 2025 — FAR update on bonding alternatives: The FAR Council has updated regulations on alternative payment protections for federal contracts, including expanded use of letters of credit and escrow arrangements as alternatives to traditional surety bonds in certain circumstances.