Recent Changes to Virginia's Little Miller Act Alter the Rules for Certain Parties to File Claims Against Payment Bonds
December 13th, 2011
On March 25, 2011, the Virginia legislature threw a curve ball to companies supplying labor or materials on public construction projects. This curve ball makes it both easier and harder for second-tier claimants to satisfy the prerequisites to filing suit against a payment bond. The amendment makes it easier for second-tier subcontractors and suppliers to recover because they no longer have to wait to file suit. However, the amendment also makes that recovery dependent upon better accounting practices because the time period for these second-tier claimants to give the required written notice of their claim has been cut in half, and any failure to provide timely written notice bars the claim.
Virginia has long had a statute setting forth the conditions under which companies or persons supplying labor or materials to publicly funded projects may make claim against the general contractor's payment bond. Va. Code § 2.2-4341, more commonly known as the "Virginia Little Miller Act," is modeled after the federal Miller Act, 40 U.S.C §§ 3131-3134, which provides the conditions for pursuing payment bond claims on federal projects. Like its federal counterpart, the Virginia Little Miller Act describes how claimants who have a direct contractual relationship with the general contractor, as well as those claimants who have a direct contractual relationship with any subcontractor but no contractual relationship with the general contractor, may bring a lawsuit against the general contractor's payment bond. The Virginia Little Miller Act requires any party who is not in a direct contractual relationship with the general contractor to give timely written notice of its claim. Prior to the 2011 amendments, the Virginia Little Miller Act was viewed as more "subcontractor friendly" than the federal act, because it allowed a subcontractor twice the amount of time to give the general contractor notice of its claim. Thus, subcontractors on state projects, who may have less sophisticated accounting practices, had a longer window to give notice and pursue a claim than their counterparts on federal projects.
In addition to the notice requirements for second-tier subcontractors and suppliers, prior to the 2011 changes to Virginia's Little Miller Act, all subcontractors or suppliers who wished to make a claim against a general contractor's payment bond on a Virginia public project had to wait 90 days from the date the subcontractor or supplier last provided labor or materials in order to file suit against the bond. This waiting period mirrored a similar waiting period in the federal Miller Act and, presumably, allows the general contractor the opportunity to investigate the subcontractor or supplier's claim and to potentially avoid litigation by making payment. After this 90-day waiting period passed, subcontractors directly under contract with the general contractor could immediately file suit, while second-tier subcontractors and suppliers could file suit so long as they also provided notice to the general contractor of their claim. The Virginia Little Miller Act required that the notice must be in writing and provided to the general contractor within 180 days of the last day labor or materials were provided. All lawsuits by any class of subcontractor or supplier had to be filed within one year of the last day the claimant supplied labor or materials.
The rules changed on March 25, 2011, when the Virginia legislature amended the Virginia Little Miller Act to release second-tier subcontractors and suppliers from the 90-day waiting period for initiating suit against the payment bond. The amendments also shortened the deadline for this class of claimants to give written notice from 180 days from the date of last provision of work or materials to 90 days. Thus, under the revised statute, a second-tier subcontractor or supplier can give notice of its claim at any time up to 90 days from when it supplied the last materials or labor, and can file suit contemporaneously with giving notice or at any time up to one year from that date of last supply. However, for subcontractors under direct contract with the general contractors, the legislature retained the 90-day waiting period to file suit.
From a purely practical perspective, imposing a waiting period on first-tier claimants, but not on second-tier subcontractors, is inexplicable. The waiting period should apply to claims by second-tier subcontractors and suppliers because the general contractor typically lacks any first-hand knowledge of these parties' existence or claims. Requiring notice by these claimants, and a 90-day opportunity for the general contractor to investigate and evaluate their claims before suit can be filed makes practical sense and is consistent with the policy and wording of the federal Miller Act. Eliminating this waiting period for second-tier claimants makes sense only from a purely public policy perspective, as allowing these remote subcontractors the right to almost immediately file suit to recover their claims fulfills the policy goals of the Little Miller Act - to ensure the prompt payment for all labor and materials incorporated into a public project.
Regardless of the legislative intent, all parties to a Virginia public construction project should take heed of these amendments, as they affect substantive rights and defenses as to claims by second-tier subcontractors and suppliers. General contractors and sureties receiving notice of claims from second-tier claimants must react and respond quickly or face the burden of dealing with a lawsuit. Second-tier subcontractors and suppliers, on the other hand, should review and update their accounts receivable processes to ensure that timely written notice is given within 90 days of the date the last work, materials or equipment are supplied on a Virginia public project.
Categories: Legal Updates