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The Difference Between a Bond Claim and a Mechanics Lien

When you’re unpaid for materials or labor furnished to a private project, the law allows you to file a lien claim against that property. When working on a state, county or municipal project, of course, the government isn’t going to tolerate claims against its interest in the land.

Therefore, to protect contractors and suppliers on the job, prime contractors working on these projects are required to post a payment bond. The payment bond is secured by a surety company, who must meet certain qualifications to guarantee they have the finances to secure the value of the project. When someone goes unpaid on the state, county or municipal project, they can make a claim for payment directly against the payment bond.

So, while a mechanics lien filing attaches to and is secured by the physical property, a bond claim attaches to and is secured by the payment bond. In a lot of ways, since properties can be over-leveraged and complex to foreclose upon, claims against payment bonds are cleaner, simpler and faster than mechanics lien claims.

What is the Bond Claim Process?

STEP 1: FILE BOND CLAIM
The first step in filing a bond claim, is of course, filing the bond claim! This step is simple enough, but because of the complexity of state requirements and the chance of error, it’s worth using a reputable bond claim processing technology like zlien to file the claim for you.

The biggest mistake you can make when filing your bond claim, however, is not getting the claim filed on time. Each state has separate deadlines for when these bond claims are due. You must get the bond claim prepared correctly, and filed in the right place all before the state’s deadline. To determine the deadline to file a bond claim in your project’s state, consult zlien’s industry leading state bond claim resources.

STEP 2: REPLY TO BONDING COMPANY WITH BACKUP
After your bond claim is filed, you’ll be contacted by the surety to advise that a claim has been opened, and to request you reply with backup materials about your claim and a sworn statement of claim. Your next step is to return this sworn statement and any backup documentation you have. Return these documents as quickly as possible to keep the claim moving along, as your claim will be delayed as long as you delay returning the materials.

STEP 3: FOLLOWUP WITH THE BONDING COMPANY
After you file your bond claim and return your bond claim sworn statement and information, the bonding company will contact their customer (the prime contractor) and notify them of the claim. They will also give the prime contractor an opportunity to respond to the claim. Prime contractors often delay responding to the bonding company, which delays your claim.

Move your claim along by following up with the bonding company and pushing them to approve the claim.

STEP 4: FILE AN ENFORCEMENT ACTION
If the bond claim doesn’t produce payment right away, and your claim is either denied or delayed unreasonably, it may be time to file a lawsuit against the surety to enforce your bond claim. That is the last step, if necessary.

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Bond Claims
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Bond Claims
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Everything contractors & suppliers need to know about Bond Claims. Guides, FAQs, form templates, and tools to make Bond Claims easy and fast for you.
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Bond Claim FAQs

Bond Claim rules, forms, and requirements can be confusing. Here are some frequently asked questions to help.

What is a bond claim?

When unpaid on a public construction project, contractors can file a claim against the project's payment bond. Filing a bond claim is an effective way to secure payment.

Is a bond claim right for me?

Bond claims are available to contractors and suppliers who provide labor or materials to public construction projects.

When is a bond claim due?

Bond claims are typically due a few months after finishing work on a job. (PRA)

What do I do after the bond claim is filed?

You can read more of what to do after filing a bond claim here: https://blog.zlien.com/construction-payment/how-to-get-paid-next-steps-after-filing-a-bond-claim/

Should I File a Bond Claim?

Are you waiting for payment on a public project? Bond claims are available to contractors and suppliers on state, federal, and municipal construction projects to claim payment for work provided on a job.

Will a Bond Claim Get Me Paid?

Similar to mechanic liens, bond claims are inexpensive to file and very effective. A properly filed bond claim provides your company security in receiving payment, as it obligates a surety company (usually a well-funded insurance company) to your claim directly, and it puts substantial pressure on the prime contractor’s relationship with their surety.

What is a Little Miller Act?

Each state has rules governing certain aspects of public projects within the state. Like the federal Miller Act, from which these state-by-state public works regulations got their “Little Miller Act” names, a state’s Little Miller Act requires a prime contractor to post payment (and performance) bonds for certain public works projects. Since public property is shielded from being encumbered by mechanics liens, these bond requirements for public works projects provide alternative security to protect construction participants against nonpayment. If unpaid on a public project subject to the Little Miller Act bond requirements, the supplier or subcontractor can make a claim against the payment bond. If the prime contractor is unable to fully perform their contractual requirements on the project for some reason, then the state can look to the performance bond for compensation to get the project finished.

Who has requirements under Little Miller Acts?

Like the federal Miller Act, the Little Miller Acts of each state set forth requirements for parties who have contracted directly with the public entity for whom the work of improvement is being undertaken. This generally applies to “General Contractors” in the sense of contractors who have subs, or other sub-tier parties, with whom they are working on the project, but certain requirements may also apply to “direct contractors” who have a contract with the public entity, but have no sub-tier contracts themselves. While requirements change from state to state, there is often a threshold contract value, below which the requirements of the state’s Little Miller Act do not apply.

Who is protected by Little Miller Acts?

The specific parties to whom protection is available pursuant to a state’s Little Miller Act is dependent on the state in which the public works project took place. However, broadly speaking, protection is extended to first and second tier subs and suppliers or equipment rental companies. Unlike the federal Miller Act, protection under Little Miller Acts may also extend to parties lower than the second-tier, but this is state dependent. It is unusual for suppliers to suppliers to qualify for Little Miller Act protection. It is important to note that parties who contract directly with the public entity, even if they do not consider themselves “general contractors” are generally not protected by a payment bond furnished pursuant to a Little Miller Act requirement.

When are Little Miller Acts and their protections used?

As mentioned above, Little Miller Acts provide an alternative to mechanics lien protection against nonpayment on public projects, since public property is shielded from liens. This means that in order for Little Miller Act bonding requirements to apply, the underlying project must be on public property (and, generally, originally contracted for by a public entity). Also as noted above, there are often monetary thresholds for the original contract, below which the requirements of a Little Miller Act do not apply. Some states require payment bonds to be furnished for the protection of sub-tier parties on every public works project, but in many states the project has to be of a significant size in order for the requirements to apply. With the rise of public private partnership (“P3”) projects, there can be some confusion as to whether the requirements imposed by a state’s Little Miller Act apply. This can be a complex issue, and is dependent on the laws of the state in which the project is located.

Do Little Miller Act requirements and protections change according to the project location?

Yes. Little Miller Act requirements and protections vary from state to state. The threshold at which the requirements apply, the parties to whom protection is afforded, the timeline for making claims, and noticing and other requirements all depend on the project’s location. Just like mechanics lien rules and requirements, the procedures governing claims against bonds on public works are also set by the state in which the project was located.

Do Little Miller Act requirements and protections change according to the project type?

Kind of. As noted above, Little Miller Act requirements only apply to public projects, so private works of improvement are not subject to these rules. Also as noted above, the applicability of the rules with respect to P3 projects is a confusing gray area, with no hard and fast rules. Besides the above, however, some states have different requirements depending on the specific type of the underlying public project. For example, a public university project may be subject to different requirements than a highway project, or a municipal school project.

What happens if I make a mistake with respect to Little Miller Act requirements?

Making a mistake with respect to Little Miller Act requirements can occur on each side of the equation. A direct contractor can make a mistake by not obtaining a bond when required to do so, or obtaining an insufficient bond. In this case, they may be exposed to penalties, as well as direct liability for nonpayment to sub-tiers in the event a payment dispute arises. A party seeking protection against nonpayment from a payment bond obtained pursuant to Little Miller Act requirements has any number of ways to make a mistake. Just like with mechanics liens (or bond claims on private projects) there are specific requirements that must be followed, notice requirements, deadlines, form requirements, and service / delivery / filing requirements must all be specifically met in order to qualify for protection. Making a mistake on any step can invalidate a claim, and result in a loss of protection.

Are Little Miller Act requirements and protections usually paired with anything else?

Little Miller Acts are one part of a scope of protections against nonpayment. In many cases, states also have prompt pay requirements that apply to public projects, as well as other potential protections. If a party has reached the point of making a claim against a payment bond on a project, there is a high likelihood that a demand or lawsuit against the specific non-paying party is also in the works, as well.

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