What Is a Payment Bond? The Miller Act and How It Protects You on Public Work

A payment bond is a three-party agreement in which a surety company guarantees that a general contractor on a public construction project will pay its subcontractors and material suppliers. If the GC fails to pay, the subs and suppliers can make a claim against the bond, and the surety pays the claim up to the bond's face value. In exchange, the surety then has recourse against the GC (and any indemnitors the GC provided).

Payment bonds exist because mechanic's liens do not attach to public property. A subcontractor working on a federal courthouse or a state university building cannot file a lien if they don't get paid — government property is exempt from lien enforcement by long-established policy. Without some alternative mechanism, subs and suppliers would refuse to work on public projects, or they would price that risk into their bids. The payment bond is that mechanism: statutory payment protection that substitutes for the lien right that doesn't exist.

The Miller Act: Federal Payment Bonds

At the federal level, the Miller Act (40 U.S.C. §3131-§3134) requires that any contractor awarded a federal construction contract over $150,000 post two bonds before the project starts: a performance bond (to ensure the work gets completed) and a payment bond (to ensure subs and suppliers get paid). The payment bond must be for the full contract amount.

The Miller Act was passed in 1935 and has been amended over time, but the core structure has been stable. On any federal construction project above the threshold, subs and suppliers have the right to claim against the payment bond if they go unpaid. The bond form, notice requirements, and filing deadlines are prescribed by federal statute.

Little Miller Acts: State and Local Public Work

Every US state has its own version of the Miller Act applying to state and local public construction projects. These are collectively known as 'Little Miller Acts.' The structure is usually parallel to federal — payment bond required above a threshold, claim rights for subs and suppliers, specific notice and filing deadlines — but the details vary meaningfully by state.

Who Can Make a Claim

Under the federal Miller Act, two tiers of claimants have direct claim rights against the payment bond: first-tier subs (those with a direct contract with the GC) and second-tier subs and suppliers (those with a direct contract with a first-tier sub). Third-tier and lower claimants generally cannot claim directly against the bond under federal law.

State Little Miller Acts follow similar structures but with variations. Some states extend protection to third-tier claimants; others restrict it more tightly. The tier limitation is a meaningful operational constraint — a material supplier to a sub-of-a-sub often cannot claim on the bond and must rely on other collection methods against their direct customer.

The Notice Requirement for Second-Tier Claimants

Under the Miller Act, a second-tier claimant must provide written notice of the claim to the GC within 90 days of the date they last supplied labor or materials to the project. This notice must state that the claimant is owed money and must identify the party (the sub) with whom they contracted. It is sent to the GC, not to the surety.

The notice requirement is strict. A second-tier claimant who fails to give notice within 90 days loses the right to claim against the bond entirely. First-tier claimants (those with a direct contract with the GC) do not have this notice requirement because the GC already knows about them — the bond claim can proceed without the preliminary notice step.

How a Bond Claim Proceeds

Once the notice (if required) has been given and the claimant is still unpaid, the formal bond claim is typically pursued in these steps:

Deadlines to File Suit

The Miller Act requires that any lawsuit on a federal payment bond be filed within one year of the date the claimant last supplied labor or materials to the project. This is a strict statute of limitations — a lawsuit filed on day 366 is time-barred.

State Little Miller Acts have their own suit deadlines, generally 1 year from last work but sometimes calculated from a different event (claim filing date, project completion date). The specific state statute controls, and for multi-state contractors this is one of the areas where compliance tracking gets complicated.

What Can Be Claimed

The payment bond covers unpaid labor and materials actually furnished to the project — the contract balance owed for work performed. It generally does not cover consequential damages, attorney's fees (unless the statute explicitly allows), or costs that cannot be directly tied to the project.

Retainage is a specific, significant component. On long projects, much of the claimable amount at project end may be retainage that has accrued but never been released. Bond claims for retainage typically have the same filing deadlines as other claims — which means retainage balances need to be watched carefully as projects near completion.

Getting Bond Information Before You Need It

On federal projects, the GC is required to provide a copy of the payment bond to any claimant who requests it. On state projects, the public agency that awarded the contract generally has the bond on file and will provide it on request. Having the bond — the actual form, with the surety's name, bond number, and claim contact information — in hand before any claim becomes necessary is a useful step in risk management.

A standard practice on any public project is to request the payment bond at the start of the job, verify the surety is reputable and solvent, and file the bond in the project file alongside insurance documents and other compliance records. Trying to find the bond in the middle of a payment dispute is much harder than requesting it at the beginning.

Bottom Line

Payment bonds are the mechanical substitute for mechanic's liens on public work, and they provide real protection for subs and suppliers — provided the notice and filing deadlines are met. The Miller Act at the federal level and the Little Miller Acts at the state level create a predictable but strict procedural framework. Working public projects without understanding bond claim rights is one of the costliest mistakes a contractor can make, and the discipline of tracking bond information and deadlines from the start of every project is what keeps those rights intact.