The federal Miller Act has been around since the mid-1930s. You would think that, by now, all questions about its application would have been resolved by the courts. Unfortunately, hundreds of lawsuits remain that involve interpretations of the Miller Act.


Some recent court decisions have focused on whether the general contractor, by the terms of its subcontract documents, can limit or eliminate a subcontractor’s Miller Act rights.


At its heart, the Miller Act applies to most federal government contracts and affords protection to subcontractors that, in private construction, would be available through state mechanic’s lien statutes. You cannot file a lien claim against federal property, so the act is a form of substitute remedy. The question then becomes: Can the general contractor put language into its subcontract terms and conditions that would negatively affect your Miller Act rights?


Contract restrictions on claims


Most construction subcontracts contain multiple terms and conditions that purport to limit or destroy a subcontractor’s ability to recover damages or even contract payments. All of you are familiar with clauses that do not concern how the work is to be performed but only concern money. For example, you can waive your right to claim time and money for extra work if you do not follow the subcontract’s written notice clauses. A pay-if-paid clause is meant to prevent you from suing on base contract amounts or changes until the owner has paid the general contractor. There are no-damages-for-delay provisions that state that you cannot recover any time-related damages. Also, there are “pass-through” clauses that state that, where the owner is at fault (for extra work, delays, etc.), your sole remedy is to pass your claims through the general contractor, and your sole entitlement is to whatever the owner grants to the general contractor.


Separately, all of these clauses have been tested in court and, with some exceptions for extraordinary circumstances, have been held to be legally enforceable. The idea is that contracting parties are free to enter into agreements that contain these provisions.


Incorporation by reference


Aside from the restrictive clauses in your subcontract, as noted above, you may also be subject to other restrictions flowing down from the owner’s contract with the general contractor. It is fairly common to have a subcontract clause that the owner’s terms and conditions are incorporated into your subcontract. Those terms may have their own notice clauses and limitation of damages provisions.


What happens when restrictive clauses meet the Miller Act?


It can be said with some assurance that the Miller Act takes precedence over a pay-if-paid clause. There are two general reasons for this. First, the courts have held that the federal statutory rights in the Miller Act cannot be eliminated by contract. In other words, the payment bond portion of the act would be meaningless if it could be defeated by a defaulting owner, a situation where the bond is of the most importance.


Second, if the subcontractor were forced to wait to sue on the payment bond because the owner had not yet paid the general contractor, the mandatory time limit for filing a Miller Act suit in court could expire.


So far, so good. Now what about a no-damages-for-delay clause? It’s not so good.


Here, the courts have drawn a distinction between a “right of recovery” (the right to recover contract payments and payment for extra work) and the “measure of recovery” (the types of damages you can obtain).


The measure of recovery can be affected in many ways. The subcontract terms can restrict markup, the value of unit prices, a general contractor’s liability for terminations for convenience, and for delay damages. A number of federal courts have held that these limitations on the amount or type of damages “simply delineate the extent of the contractor’s liability.” Because the contractual liability of the general contractor determines Miller Act coverage, the surety’s exposure is also limited by these restrictions. (Whether extra labor, equipment, materials or supervision resulting from changes that also require additional time are partially “delay damages” are separate issues.) In other words, your Miller Act rights remain, but a contract can change the amount you can recover against a Miller Act surety.


This distinction between the right of recovery and the amount of recovery is not easy to summarize. The Miller Act bonding company has all of the defenses of the general contractor.


The Miller Act vs. 
pass-through claims


A more difficult problem comes with the pass-through clause (also referred to as a liquidating agreement). What if your subcontract on a federal government job provides that if your claims relate to actions by the government, you will only be entitled to whatever compensation and time extension are granted by the government to the general contractor on your behalf?


In two recent cases, courts have held that this pass-through limitation improperly restricts the subcontractor’s Miller Act rights. In a 2010 case from a federal court in California, Foundation Fence Inc. v. Kiewit Pacific, the pass-through language was that the “subcontractor agrees that it will accept such adjustment, if any, received by contractor from [the government] as full satisfaction and discharge of such claim.” 


In the second case, HPS Mechanical Inc. v. JMR Constr. Corp., from another federal court in California in 2014, the pass-through language was similar.


The positions of these California courts was that the pass-through provision essentially acted as a waiver of Miller Act rights—that the government, not a court in a Miller Act lawsuit, would have final say over the claims. In addition, like the pay-if-paid argument, if the subcontractor had to wait to file a Miller Act lawsuit until there was a final government decision on the pass-through claims, the act’s time limits might have expired. The “enforcement of such terms to preclude Miller Act liability contradict the express terms of the Miller Act” as decided in United States ex rel. Walton Technology v. Weststar Engineering, 2002.


These are important decisions to keep in mind for federal projects, and they may influence how a state court interprets its own state’s “Little Miller Act.”