Last week we briefly discussed the Miller Act and performance bonds. A payment bond is different from a performance bond in that it provides a form of collateral for unpaid subcontractors and material suppliers who provide labor and/ or materials on federal construction projects. Because these downstream subcontractors and material suppliers do not have lien rights on governmental projects, the payment bond works as a substitute for lien rights over real property. The payment bond effectively stands in place of the real property for purposes of security
The primary public policy purpose of the Miller Act payment bond is to replace the security normally provided by the lien right which attaches to real property. Instead of foreclosing on the mechanics lien, a claim or suit on the bond is made.
Our next discussion will focus on the Miller Act in South Carolina.