Miller Act Trumps “Pay if Paid” Clause

Kegler Brown Construction Newsletter

A federal court in Georgia has ruled that the Miller Act, which requires payment bonds on federal projects, prevails over a contingent “payment” clause in the subcontract. In this recent case, the unpaid subcontractor signed a “pay if paid” clause and the government never paid the defaulting and insolvent contractor, so the contractor’s surety claimed no monies were due the subcontractor under the payment bond.

The court ruled that while a surety can generally use the contract defenses of its principal (contractor), a contract provision that would deny a subcontractor its remedy under the Miller Act cannot be used by the surety:

“To hold otherwise would turn a pay-when-paid contract provision into an implicit waiver of the subcontractor’s Miller Act rights…”

Therefore, the subcontractor was allowed to recover against the surety under these circumstances.

Subcontractors seeking recovery under their state’s “Little Miller Act” on state public works may be able to utilize this same argument if they have signed a contingent payment clause.