Kate M. Manuel
Legislative Attorney
Payment and other protections for subcontractors on certain federal contracts under the Miller Act, the Prompt Payment Act, and the Small Business Act have recently become a topic of congressional and public interest because of the effects of the recession upon small businesses. Many subcontractors on federal prime contracts are small businesses, and small businesses generally receive special consideration under federal law and policy.
The Miller Act of 1935 authorizes subcontractors who furnished labor or materials used in carrying out federal construction projects valued in excess of $150,000 to bring a civil action against prime contractors’ payment bonds to obtain payments due. Congress enacted the Miller Act to compensate for the difficulties that subcontractors would otherwise have in obtaining payment from federal construction contractors, given that they cannot place a mechanic’s lien on the work because the government has sovereign immunity. The doctrine of sovereign immunity protects the government from being sued without its consent, and the Contract Disputes Act waives the government’s sovereign immunity only as to suits involving contracts to which the government is a party, not subcontracts under these contracts. Relatedly, there is no privity of contract, or direct contractual relationship, between the government and the subcontractor, which means that the subcontractor cannot sue to enforce the payment or other terms of the subcontract against the government.
The 1988 amendments to the Prompt Payment Act provide an additional form of payment protection for subcontractors on federal construction contracts by requiring federal agencies to include in their contracts a clause obligating the prime contractor to pay the subcontractor for “satisfactory” performance within seven days of receiving payment from the government. Absent such a clause in the prime contract, the prime contractor would generally be free to agree to whatever payment terms it wishes with the subcontractor and would not necessarily pay the subcontractor as quickly.
The Small Business Act provides a different sort of protection for some prospective subcontractors by requiring that prime contractors agree to plans for subcontracting some percentage of the work to be performed under certain federal contracts with various types of small businesses (e.g., women-owned small businesses, service-disabled veteran-owned small businesses). Without such subcontracting plans, or similar contract terms, prime contractors would be free to subcontract with whomever they wish for the completion of work under the contract and would not be required to deal with these categories of small businesses.
The 111th Congress amended the Small Business Act to require that prime contractors notify the contracting officer in writing whenever they pay a “reduced price” to a subcontractor for completed work, or payment is more than 90 days past due (P.L. 111-240, § 1334). These amendments also require agencies to consider “unjustified failure” to make timely payments to subcontractors when evaluating contractors’ performance, as well as publicly identify contractors who have a “history of unjustified, untimely payments” to subcontractors. If concerns about protections for federal subcontractors persist, the 112th Congress may consider legislation like that proposed, but not enacted, in the 111th Congress (see, e.g., H.R. 4134, H.R. 4929, H.R. 5109). Additionally, members may hold hearings or otherwise oversee agency implementation of the existing protections for subcontractors.
Date of Report: January 3, 2011
Number of Pages: 13
Order Number: R41230
Price: $29.95
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Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Legislative Attorney
Payment and other protections for subcontractors on certain federal contracts under the Miller Act, the Prompt Payment Act, and the Small Business Act have recently become a topic of congressional and public interest because of the effects of the recession upon small businesses. Many subcontractors on federal prime contracts are small businesses, and small businesses generally receive special consideration under federal law and policy.
The Miller Act of 1935 authorizes subcontractors who furnished labor or materials used in carrying out federal construction projects valued in excess of $150,000 to bring a civil action against prime contractors’ payment bonds to obtain payments due. Congress enacted the Miller Act to compensate for the difficulties that subcontractors would otherwise have in obtaining payment from federal construction contractors, given that they cannot place a mechanic’s lien on the work because the government has sovereign immunity. The doctrine of sovereign immunity protects the government from being sued without its consent, and the Contract Disputes Act waives the government’s sovereign immunity only as to suits involving contracts to which the government is a party, not subcontracts under these contracts. Relatedly, there is no privity of contract, or direct contractual relationship, between the government and the subcontractor, which means that the subcontractor cannot sue to enforce the payment or other terms of the subcontract against the government.
The 1988 amendments to the Prompt Payment Act provide an additional form of payment protection for subcontractors on federal construction contracts by requiring federal agencies to include in their contracts a clause obligating the prime contractor to pay the subcontractor for “satisfactory” performance within seven days of receiving payment from the government. Absent such a clause in the prime contract, the prime contractor would generally be free to agree to whatever payment terms it wishes with the subcontractor and would not necessarily pay the subcontractor as quickly.
The Small Business Act provides a different sort of protection for some prospective subcontractors by requiring that prime contractors agree to plans for subcontracting some percentage of the work to be performed under certain federal contracts with various types of small businesses (e.g., women-owned small businesses, service-disabled veteran-owned small businesses). Without such subcontracting plans, or similar contract terms, prime contractors would be free to subcontract with whomever they wish for the completion of work under the contract and would not be required to deal with these categories of small businesses.
The 111th Congress amended the Small Business Act to require that prime contractors notify the contracting officer in writing whenever they pay a “reduced price” to a subcontractor for completed work, or payment is more than 90 days past due (P.L. 111-240, § 1334). These amendments also require agencies to consider “unjustified failure” to make timely payments to subcontractors when evaluating contractors’ performance, as well as publicly identify contractors who have a “history of unjustified, untimely payments” to subcontractors. If concerns about protections for federal subcontractors persist, the 112th Congress may consider legislation like that proposed, but not enacted, in the 111th Congress (see, e.g., H.R. 4134, H.R. 4929, H.R. 5109). Additionally, members may hold hearings or otherwise oversee agency implementation of the existing protections for subcontractors.
Date of Report: January 3, 2011
Number of Pages: 13
Order Number: R41230
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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