The purpose of the Miller Act is to provide security of payment to those who perform work on a Federal Project, but do not have a direct contract with the owner. The Miller Act requires that a “payment bond” be procured on all Federal Projects, which inures to the benefit of the subcontractors and suppliers.
But what happens when a prime contractor (a company with a contract with the owner) hires a design professional such as an architect or an engineer? Despite the Act’s inclusive language regarding the range of contractors that qualify for protections, design firms providing professional services to a prime contractor on a federal project do not have rights under the Miller Act to make a claim against the prime contractor’s payment bond.
It’s an odd exclusion, and reflects the way projects were conceived, planned and constructed before the days of more creative construction planning came about. There is, however, a limited exception to the general rule: if the design professional such as an architect or engineer performs on-site supervision or inspection duties, then the professional will be entitled to file a bond claim under the Miller Act.
In American Surety Co. of New York v. United States ex rel. Barrow-Agee Labs., 76 F.2d 67 (5th Cir. 1935) originally ruled on the question of what constitutes “labor.” In that case, the work performed was the inspection and analyzation of loads of gravel being placed for the construction of roads in Louisiana. Holding that the work “involved considerable physical labor and some experience and skill,” the court found that “[a]n ordinary workman could do it after being shown and having some practice.”
In the seminal case of United States ex rel. Thayer v. Metro Construction Corp., 330 F. Supp. 386 (E.D.Va. 1971), the court ruled engineers who prepare designs, drawings and specifications are not protected by the Miller Act and therefore cannot file or enforce claims on the prime contractor’s payment bond.
In general, since the Thayer case, the courts have focused on the nature of the services and how and where they are performed in order to determine whether Miller Act protection applies to the architect or engineer.
In short, if a design professional performs purely off site work, it will not be protected by the Miller Act. However, on-site services that relate to the construction, such as supervisory or inspection services, will most likely be covered by the Miller Act, and a Miller Act bond claim can be pursued. Keep in mind, however, that the Miller Act will only permit recovery in most instances only to the value of the on-site work.
With the economy still not back on track, every day we get more calls and emails asking about the filing of a mechanics lien or bond claim. With financing still shaky, and owners and contractors running out of money, non-payment issues abound.
At Lienitnow, we take the time to double check owner information. More often than you’d think, we find that the owner listed on the construction contract is not the same owner that holds the deed to the property. Sometimes, in homeowner cases, we will find that the owner listed on the contract does not actually own the property, his wife does, or another relative owns the property. In some cases, we’ve found that a nickname was used, rather than the legal name, on the residential construction contract.
On commercial projects, many of our clients assume that when they are building a Target or a Albertsons, that these companies are the actual owners of the properties. In fact it is rare for a large corporation to own a property on which their store is being built, and even rarer for the record name of the property owner to be the same as the parent company.
This issue is more complicated when your work is only on a portion of a property that houses multiple street addresses. As is clear from the mechanic’s lien statutes, failure to properly name the owner of the property can be fatal to the lien. With that in mind, finding out who owns the property is key.
Whenever you file a mechanics lien, you should make sure that you have looked into and verified the owner of the property with the local government authority that keeps track of property ownership. At LienItNow.com, which provides mechanics lien filing services, the company performs this service for you, and verifies the owner with the county clerk. If the owner you have is different that the one found by LienItNow, you can then make a decision as to whether you want to perform a title search to delve further into the issue.
Just be sure to double check the real estate owner information before you file your mechanics lien and you will be glad you did.
As if filing a lien wasn’t confusing enough, each state has its own requirements about what you need to do before you file the lien. Pennsylvania requires that subcontractors provide the owner with a prelien notice 30 days before they file a lien. New Jersey requires that on public projects a notice of furnishing be provided within the first 20 days of performing work or delivering materials. Florida requires notices to owners before the filing of a lien claim. Bond statutes require all sorts of things, some even require certain notices be provided to the contractor, bonding company and owner at the beginning of the project and at the end.
Whatever they’re called – prelien notices, notice to owner, notice of furnishing, notice of intent to file a lien, and preliminary notice – they all have the same purpose: to warn the owner that a mechanics lien may be filed.
We call them prelien notices because its a great catch all term. Some states use the term prelien notice, but not all. The term prelien notice refers to any notice to an owner, contractor, lender or other party that must be provided before filing a mechanics lien, construction lien, stop notice, or bond claim. It makes sense, because it is served before the lien is filed – pre-lien.
Notice to Owner
The notice to owner term is used in states like Florida, where they call it NTO in shorthand. Florida is probably the one state in the county where preliens are sent out as a matter of course. In most other states companies are concerned about sending out their notices for fear of alarming the customer. The Florida Notice to Owner has become part of the business routine, advice contractors in other states should heed. Where NTOs are used, they are sent out at the beginning of the project, and often again prior to the filing of a mechanics lien. This NTO routine gives the owner notice not only that a subcontractor or supplier is working on the property, but later acts as a warning signal that a lien is going to be filed.
Notice of Furnishing
A notice of furnishing (often called a “notice of furnishing of labor or materials) serves one purpose: to inform the owner or contractor that a subcontractor, supplier, or sub-subcontractor is performing work on a project. Because the owner or contractor did not hire the person serving a notice of furnishing, they may not know that the subcontractor or sub-subcontractor is performing work on the project. The notice of furnishing requirement provides that notice in writing, and allows the owner and contractor to keep track of who may or may not be a construction lien or bond claimant.
Perhaps in this section we could simply put “see prelien notice” for the explanation of a preliminary notice (also referred to as a preliminary notice before lien). Prelien notices and preliminary lien notices are the same creature, just different terms. They are both catch-all provisions in the world of mechanics liens, and the timing of the service of both the prelien notice and the preliminary notice depends exclusively on the state’s requirements.
Notice of Intent to File Lien
The notice of intent to file lien is exclusively used to provide a warning that a mechanics lien claim is going to be filed. The notice of intent should be served on the owner, and anyone up the contractual ladder prior to filing a construction lien claim. In the states that require the notice of intent to file lien, failure to attempt service of the document before filing a lien claim may result in the lien being discharged.
LienItNow | 946 Main Street | Hackensack | NJ | 07601