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Phyllis Harden

Legislative & Special Projects, Pine Bluff Sand & Gravel
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Miller Act

Preserve the Intent of the Miller Act

Background:

  • Enacted in 1935, the Miller Act requires that, before any contract exceeding $100,000 is awarded for the construction, alteration or repair of any building or public work of the United States, the construction contractor must furnish a payment bond and a performance bond. The Miller Act has successfully protected the interests of the federal government, taxpayers, and subcontractors and suppliers over the last 70 years by ensuring that construction contractors are qualified to perform their contractual obligations to the government, that precious taxpayer funds are protected through third-party guarantees of contract performance and payment, and that subcontractors and suppliers have a payment remedy in the event the prime contractor becomes insolvent or fails to pay them. Bond underwriters evaluate the capacity, character, and capital of construction firms to determine if and how much surety credit to extend. The granting of surety credit demonstrates that contractor’s ability to perform. Therefore, Miller Act bond requirements ensure that, when the federal government seeks to procure construction, it will select from a pool of contractors qualified to perform the project.

AGC Message:

  • Award Reasonably Sized Construction Contracts to Enhance Competition. Increasingly, the federal government is awarding ever-larger contracts for public works and infrastructure projects. These mega-projects reduce bidder competition and aggregate project risk, and may challenge surety capacity, sometimes necessitating percentage or partial bonds instead of bonds covering 100% of the contract price. The federal government needs to find ways to unbundle extraordinarily large construction projects, so more contractors can compete for these projects and so these projects are fully covered by the performance and payment bonds.
  • Oppose Contract & Surety Requirements That Guarantee Specific “Green Building” Rating Levels in Public Construction.Governments at all levels increasingly have or are considering enacting laws and regulations mandating green building/sustainability requirements in public and private construction. Such legislation may include surety bonding requirements that place inappropriate risks on contractors and sureties. For example, neither the contractor nor its surety should be required to guarantee contractually the attainment of a certain LEED rating, since specific LEED ratings are attained through collective decisions and actions by the project team, not one project participant, such as the contractor.
  • Enforce Bonding Requirements on Overseas Public Construction. Incidents have arisen recently in which Miller Act bonding requirements may have been waived inappropriately on overseas federal construction projects. The government should monitor and encourage scrutiny of bonding practices of the US Department of State, Overseas Building Office, and of other federal agencies administering overseas construction projects. Furthermore, the federal government should promulgate regulations that would make transparent any decisions by contracting officers to waive bonds on overseas federal construction projects. With respect to federal grant funds, regulations should be promulgated to require US Department of Treasury listed sureties to be used for bonding construction work involving federal-aid funds in US territories and possessions.
  • Tighten Federal Requirements on the Acceptability of Bonds Issued by Individual Sureties. Individual sureties wishing to write bonds on federal construction projects are not required to possess a certificate of authority from the U.S. Dept. of Treasury, so they are not subject to financial review and audit requirements. Rather, the contracting officer determines the acceptability of the individual surety and the sufficiency of the pledged assets. This places a tremendous administrative burden on contracting officers. Federal regulations should be changed to limit the types of assets that can be pledged by individual sureties, thereby reducing the administrative burden shouldered by contracting officers and reducing instances where unacceptable assets may be inadvertently accepted.
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