40 USC 3131, the Miller Act: Bonds, Thresholds, and Claims

Under the Miller Act, codified at 40 USC 3131, any federal construction contract worth more than $100,000 requires the prime contractor to furnish two bonds before the contract is awarded: a performance bond protecting the government and a payment bond protecting subcontractors and suppliers. The Federal Acquisition Regulation sets the practical threshold for mandatory bonding slightly higher, at $150,000, with alternative payment protections required on contracts between $35,000 and $150,000. Both bonds generally equal 100 percent of the contract price, and work cannot begin until they are in place.¹

The rule exists because the government cannot have a mechanic’s lien placed on federal property. Workers and suppliers on a private job can lien the building if they aren’t paid; on a federal job they can’t, so the payment bond substitutes for that remedy.

The Two Bonds the Statute Requires

Section 3131 calls for two separate instruments, each with its own beneficiary.

The performance bond runs to the government. If the contractor defaults, the surety company must either arrange for another contractor to finish the work or pay the government for its losses up to the bond amount.

The payment bond runs to the people who furnish labor or materials. Because they can’t lien federal property, this bond is their financial backstop if the prime contractor fails to pay them.¹

Both must be filed with the contracting agency before the contract is awarded, and the contractor cannot start work without them.

Thresholds and Bond Amounts

Section 3131 itself triggers the bonding requirement on contracts “of more than $100,000.”² The FAR, which governs how agencies actually implement the statute, requires full performance and payment bonds only once the contract exceeds $150,000.¹

For contracts between $35,000 and $150,000, you don’t post the full Miller Act bonds, but the contracting officer still must choose a form of payment protection from a menu that includes a payment bond, an irrevocable letter of credit, a tripartite escrow agreement, or certificates of deposit.

On the amount: the FAR’s standard construction bond clause fixes both the performance bond and the payment bond at 100 percent of the original contract price at the time of award.³ The statute gives the contracting officer limited discretion to set a performance bond in an amount the officer “considers adequate,” and allows the payment bond to be reduced only on a written determination that a full-price bond is impractical. Even then, the payment bond cannot be less than the performance bond.²

Bid Bonds Come First

Before any of this, the solicitation itself usually requires a bid bond, sometimes called a bid guarantee. A bid bond commits you to actually execute the contract and furnish the performance and payment bonds if your bid wins. If you walk away after being selected, the bid bond compensates the government for the cost of going to the next bidder.

The FAR sets the bid guarantee at a minimum of 20 percent of the bid price, capped at $3 million.⁴ In sealed bidding, a bid submitted without the required guarantee is generally rejected. Narrow waivers exist, such as when only one offer is received or when the shortfall in the guarantee is smaller than the gap between the winning bid and the next acceptable one.

Who the Parties Are and Where the Bond Comes From

Every bond involves three parties. The principal is you, the contractor. The surety is the company guaranteeing your performance and payment obligations. The obligee is the federal agency that commissioned the project and holds the right to enforce the bond.

Not every surety qualifies for federal work. Any company writing a Miller Act bond must appear on the Department of the Treasury’s Circular 570 list of approved sureties.⁵ Before issuing a bond, the surety will underwrite you much like a lender: financial statements, credit history, past project performance, and available working capital. Thin financials or limited federal experience can mean higher premiums, a demand for collateral, or outright refusal.

If You Can’t Get Bonded the Usual Way

Two paths exist for contractors who can’t clear a surety’s underwriting or who prefer not to post a corporate bond at all.

SBA Surety Bond Guarantee Program

The Small Business Administration will guarantee a portion of a bond issued by a participating surety, reducing the surety’s risk and making bonds available to small contractors who otherwise couldn’t get them. The program covers bid, performance, payment, and ancillary bonds for contracts up to $9 million on non-federal projects and up to $14 million on federal projects.

To qualify you must meet SBA size standards for a small business and satisfy the surety’s own credit, capacity, and character review. The SBA charges a guarantee fee of 0.6 percent of the contract price, with no fee for bid bond guarantees.⁶

Alternatives in Lieu of a Corporate Surety

The FAR also allows a contractor to substitute other security for the surety bond itself, as long as the security equals the full penal sum of the required bond.⁷ Accepted forms include:

U.S. bonds or notes deposited at par value equal to the penal sum.
Certified checks, cashier’s checks, bank drafts, postal money orders, or currency.
Irrevocable letters of credit from a federally insured, investment-grade financial institution. A separate letter is needed for each bond, and for performance or payment bonds the letter must either cover the full required period or renew automatically each year until coverage is no longer needed.⁸

You can combine these alternatives with each other or with a traditional surety bond, and you can swap one form of security for another during the life of the contract so long as the replacement meets the same requirements. The agency must safeguard any deposited security and return it when the bond obligation ends.

What Happens If You Don’t Furnish the Bonds

Failure to post the required bonds unravels the contract fast. The contracting agency can terminate before work ever begins. Beyond the lost project, a contractor with a pattern of willful nonperformance faces debarment, which bars participation in any federally funded work. Debarment generally runs up to three years, and up to five for drug-free workplace violations.⁹

The grounds for debarment reach fraud in obtaining or performing a contract, antitrust violations in bid submissions, embezzlement, bribery, false statements, and any offense reflecting a serious lack of business integrity.¹⁰ If you proceed without bonds and cause losses to the government or to unpaid subcontractors, personal liability is on the table, and knowingly false claims trigger the False Claims Act’s treble damages plus a per-violation civil penalty adjusted annually for inflation.¹¹

How Subcontractors Collect on the Payment Bond

Whether you’re the prime contractor furnishing the bond or a subcontractor relying on it, the claim process in 40 USC 3133 is strict about deadlines.

A subcontractor or supplier with a direct contract with the prime contractor who hasn’t been paid in full within 90 days after the last day of labor or final material delivery can sue on the payment bond in federal district court. No advance notice to the prime is required. The suit must be filed within one year of that last day of labor or delivery.¹²

A second-tier claimant, meaning someone who contracted with a subcontractor rather than the prime, must additionally serve written notice on the prime contractor within 90 days of their last work or delivery, stating the amount owed with substantial accuracy and identifying who the labor or materials were furnished to. Service must use a method that provides third-party verification of delivery; certified mail with return receipt is the usual choice. The same one-year suit deadline then applies.¹²

Any waiver of the right to sue on a payment bond is void unless it’s in writing, signed by the person waiving the right, and signed only after that person has already begun furnishing labor or materials. A blanket waiver inserted into a subcontract before work starts is unenforceable.³

1
Acquisition.GOV. FAR 28.102-1 General
2
Office of the Law Revision Counsel. 40 USC 3131 – Bonds of Contractors of Public Buildings or Works
3
Acquisition.GOV. 48 CFR 52.228-15 – Performance and Payment Bonds-Construction
4
govinfo.gov. Federal Acquisition Regulation 48 CFR Part 28
5
Bureau of the Fiscal Service. Surety Bonds
6
U.S. Small Business Administration. Surety Bonds
7
Acquisition.GOV. FAR 28.204 Alternatives in Lieu of Corporate or Individual Sureties
8
Acquisition.GOV. Irrevocable Letter of Credit
9
eCFR. 48 CFR 9.406-4 – Period of Debarment
10
Acquisition.GOV. 48 CFR 9.406-2 – Causes for Debarment
11
United States Department of Justice. The False Claims Act
12
Office of the Law Revision Counsel. 40 USC 3133 – Rights of Persons Furnishing Labor or Material