Federal and state laws require contractors to get performance and payment bonds if they want to work on a public project. They must be able to qualify to get these bonds from authorized surety companies in order to be awarded such a contract.
The purpose of the bonds is to guarantee the payment of subcontractors and suppliers if the contractor doesn’t or can’t pay them. These bonds also protect taxpayer dollars that go toward public projects.
What laws govern these bonds?
The federal law, which was enacted in 1935, is called the Miller Act. Arizona, like the majority of states, has its own version. It’s referred to as the Little Miller Act.
Claims that are filed when someone takes the contractor to court are called “Little Miller claims.” They’re similar to mechanic’s liens on non-public projects. However, the law aims to ensure that contractors fulfill their obligations on public projects so that these claims aren’t necessary.
How is the amount of a bond determined?
A performance bond must cover the contracted amount for the bid. A payment bond must cover the amount contracted to any party that supplies the contractor with materials or labor where payment is due when the project is completed. Both types of bonds must also cover attorney’s fees should a claim have to be filed.
If your business is new to public projects and is required to obtain performance and payment bonds, it’s wise to learn more about the Little Miller Act and these bonds. If you’re providing materials or labor to another party on a public project, it’s also a good idea to understand how the bonds protect you. If you have questions or concerns, having legal guidance can help.