Miller Act Bond
Also known as: Federal Performance and Payment Bond, Miller Act Payment Bond, Miller Act Performance Bond
The Miller Act is the federal statute that requires prime contractors on U.S. government construction, alteration, or repair contracts above a dollar threshold — currently $150,000 — to furnish two surety bonds before starting work. The first is a performance bond that guarantees the contractor will complete the project according to the contract, protecting the federal government against default. The second is a payment bond that guarantees subcontractors, laborers, and material suppliers will be paid. This payment guarantee exists because no one can place a mechanic's lien on federal property — so the bond is the only recourse unpaid lower-tier parties have. Together these are the classic Miller Act bonds.
For a small subcontractor, the Miller Act is a powerful protection: if the general contractor doesn't pay you on a federal job, you can sue on the payment bond directly, though strict notice and timing rules apply (generally a 90-day notice for parties without a direct contract with the prime, and a one-year suit deadline). For a contractor bidding federal work, the practical reality is that you cannot win the award without a surety willing to issue these bonds, so your bonding capacity effectively caps the size of federal jobs you can pursue. Like every surety bond, the contractor indemnifies the surety, so a default that triggers a bond payout becomes a debt the contractor owes back to the surety.
A key nuance is scope: the Miller Act governs federal contracts only. States have their own "Little Miller Acts" imposing similar performance-and-payment bond requirements on state and municipal projects, often with different thresholds. Contractors also frequently confuse the required bonds with a bid bond, which is a separate guarantee submitted with the proposal itself; see contract vs. commercial surety for how these contract bonds fit together.
Real-world scenario
Ironline Federal Construction LLC, a mid-sized general contractor with roughly $8,500,000 in annual revenue, is awarded a $3,200,000 contract to renovate a U.S. courthouse. Because the federal contract exceeds the Miller Act threshold of $150,000, Ironline must furnish a performance bond and a payment bond before it can start work. Its surety writes both with a penal sum of $3,200,000 each (100% of the contract value) and charges a single blended premium of $72,000 — about 2.25% of the contract price.
To qualify, the underwriting review examined Ironline's $1,200,000 net worth and $450,000 of working capital, and approved it under a single-project limit of $4,000,000 and an aggregate bonding line of $10,000,000. Ironline also signed a general indemnity agreement and posted $50,000 in collateral. Midway through the job, a second-tier drywall subcontractor goes unpaid on a $185,000 invoice after a first-tier sub becomes insolvent.
The subcontractor files a claim against the payment bond. The surety investigates, spends $28,000 on legal and audit costs, confirms the debt, and pays the claimant $185,000. Under the indemnity agreement, Ironline must reimburse the surety the full $185,000 plus the $28,000 in expenses — a total of $213,000 — which the surety first offsets against the $50,000 collateral, leaving Ironline to repay $163,000. The bond protected the worker and kept the federal project moving, but it never shielded Ironline from its own ultimate liability.
How it affects your premium
Miller Act bond premiums are not priced on risk the way liability insurance is — surety underwriters treat the bond as an extension of credit, so pricing turns mostly on the contractor's financial strength and track record. Typical rates run 1% to 3% of the contract value. Key drivers include:
- Contract size and penal sum: The premium is a percentage of the bonded amount, so a larger federal contract means a larger dollar premium even at the same rate.
- Contractor financial strength: Working capital, net worth, and bank lines directly set the rate; stronger balance sheets earn rates near 1%, weaker ones pay 3% or more.
- Bonding capacity and backlog: How much of the contractor's single-project and aggregate surety capacity is already committed to other jobs affects both eligibility and price.
- Experience and completion history: A clean record of finishing similar-sized federal work lowers the rate; prior defaults or claims raise it sharply.
- Personal indemnity and collateral: Owners typically sign personal indemnity; posting collateral or accepting a co-surety can reduce the rate for a marginal account.
- Project type and duration: Complex, long-duration, or specialized scopes carry higher rates than routine short-term work.
- Credit and character: Personal and business credit scores of the principals factor heavily, since the surety expects full reimbursement of any paid claim.
Common misconceptions
Myth: A Miller Act bond protects the contractor if the project goes wrong.
Reality:
It protects the federal government and unpaid subcontractors and suppliers — not the contractor. Under the indemnity agreement, the contractor must fully reimburse the surety for every dollar it pays out.
Myth: A Miller Act bond is a type of insurance.
Reality:
It is a three-party surety bond, not insurance. Insurance pools risk expecting some losses, while surety underwrites for zero loss and treats any claim as a loan the contractor must repay.
Myth: Miller Act bonds are required on every government construction job.
Reality:
They apply only to federal construction contracts above the statutory threshold (currently $150,000 for full performance and payment bonds). State and local projects instead rely on similar 'Little Miller Act' statutes and their own contract surety rules.
Frequently asked questions
What contracts require a Miller Act bond?
Federal construction, alteration, or repair contracts exceeding $150,000 require both a performance bond and a payment bond. Contracts between $35,000 and $150,000 require payment protection but may allow alternatives to a full bond.
What is the difference between the performance bond and payment bond under the Miller Act?
The performance bond guarantees the contractor completes the work per the contract, protecting the government. The payment bond guarantees that subcontractors and material suppliers get paid, since they cannot place liens on federal property.
How much does a Miller Act bond cost?
Premiums typically run 1% to 3% of the contract value, driven by the contractor's financial strength and experience. A $3,200,000 contract might cost roughly $32,000 to $96,000 for both bonds combined.
Who can file a claim against a Miller Act payment bond?
First-tier subcontractors and suppliers who have a direct contract with the prime, and second-tier subs who supplied labor or materials, can sue on the bond — generally after a 90-day waiting period and within one year of last furnishing labor or materials.
Does a Miller Act bond replace general liability or workers' comp?
No. It only guarantees performance and payment. Contractors still need separate coverages like general liability and workers' compensation for bodily injury, property damage, and employee injuries.
Sources cited
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