Construction bonds guarantee that construction will comply with all statutes and licensing regulations that the state has set forth. Contractors bonds and commercial construction bonds are both required to start a project, and a completion bond is needed to finish the project. These legal documents help to protect project owners from the contractor who fails to perform.
State governments have enacted legislation to protect labor or material suppliers on projects owned by other public bodies, often referred as Little Miller Acts. The traditional mechanic’s lien is not available as a remedy under government owned construction projects. To protect themselves from non-payment by a prime contractor, subcontractors and suppliers must rely on the state Little Miller Acts for state-owned projects.
State Little Miller Acts vary from state to state in the protection that is offered. For example, the Maryland Little Miller Act is designed to protect subcontractors and suppliers on public works construction projects by requiring general contractors to post labor and material payment bonds to secure their payment obligations on these projects. The Michigan Little Miller Act provides procedure for bonding contractors for public buildings and public works of governmental units. Many Little Miller Acts narrow the scope of affected public contracts, raise the threshold contract amount or revise the notice requirements. So it is important that the subcontractor never assume that a payment bond exists on every public project, whether it is a state or federal project.