Glossary
Payment bond
A payment bond obligates the surety to pay subcontractors, laborers and material suppliers if the prime contractor does not. It exists because mechanic's lien rights generally do not attach to public property (no one can foreclose on a courthouse), so the bond substitutes for the lien.
The Miller Act requires a payment bond for the protection of all persons supplying labor and material on federal construction, and 2 CFR 200.326 requires a payment bond for 100 percent of the contract price on federally funded construction above the simplified acquisition threshold.
The short version
- The payment bond protects your subs and suppliers, not you. Claims against it are claims you will indemnify.
- Public property generally cannot be liened, which makes the bond the exclusive security for lower tiers.
- Claimants must meet notice deadlines, which differ sharply between the federal Miller Act and each state's Little Miller Act.
- If you are a subcontractor, ask for a copy of the payment bond before you start work. You are entitled to know the surety.
Why it matters to a bidder
Which side of the bond you are on determines what to do about it:
- As a prime: every payment dispute with a sub can become a bond claim, and bond claims are visible to your surety. A pattern of claims degrades your bonding program even when you ultimately prevail. Pay disputed amounts into escrow rather than letting a claim ripen.
- As a subcontractor or supplier: the bond is your collection mechanism, and it works only if you preserve it. Get the bond and the surety's name at the start of the job, calendar the notice deadlines from your first day of work, and send preliminary notices even when relations are good.
- Second-tier suppliers face stricter notice rules than first-tier subcontractors in most statutes. Know which tier you are.
A real example
A drywall supplier ships $180,000 of material to a subcontractor on a county jail expansion. The subcontractor fails mid-job. The supplier has no lien rights against the county's property. Its recovery depends entirely on the prime's payment bond, and on whether it sent the written notice its state's Little Miller Act requires within the statutory window after last furnishing material. It sent the notice on day 88 of a 90-day window and recovered. A second supplier on the same job missed the window and recovered nothing.
How state and local differs from federal
Under the federal Miller Act, a supplier without a direct contract with the prime must give written notice to the prime within 90 days of last furnishing labor or material, and suit must be brought in federal district court within one year of that date. Those two numbers are uniform nationwide.
State Little Miller Acts are not uniform. Notice periods, who must be notified, the form and delivery method of the notice, and the limitations period for suit all vary by state, and several states impose additional preliminary notice requirements at the start of work rather than at the end. Coverage differs too: some state acts extend protection to tiers the Miller Act does not reach, and others are narrower. If you supply public work in multiple states, the notice calendar has to be built state by state.
Common questions
Can I lien a public project?
Generally no. Public property is not subject to mechanic's liens, which is precisely why the payment bond exists.
Who can claim against a payment bond?
Subcontractors, laborers and material suppliers, subject to tier limits and notice rules that differ between the federal Miller Act and each state's statute.
How do I get a copy of the bond?
Ask the prime, or request it from the public owner through a public records request. Bonds filed with the owner are public documents.
Does a payment bond protect the owner?
Indirectly. It protects the owner from claims and from the disruption of unpaid lower tiers, but the owner's completion protection comes from the performance bond.