A new law will help subcontractors working on federal projects get the pay they deserve by eliminating payment bond caps and offering other financial safeguards.

On Aug. 17, President Clinton signed into law the Construction Industry Payment Protection Act, which amends several outdated provisions of the 65-year-old Miller Act.

The reform effectively closes loopholes that often made it difficult for subcontractors and suppliers to get paid - even when the required payment bond was in place. The old law, for example, limited the amount of the payment bond to $2.5 million for all subcontractor work on a project. The payment ceiling made partial payment or nonpayment inevitable.

The new law reduces the financial risks in the three following ways:

  • Eliminates the $2.5 million cap on payment bonds. In general, the law requires the payment bond to equal the full dollar amount, but in no case can it be less than the amount of the performance bond.

  • Prohibits prime contractors from requiring subcontractors to waive their payment bond rights prior to commencement of work.

  • Permits a subcontractor to notify a prime contractor that the sub has initiated an action under provisions of the Miller Act by any means of notification that can be verified by a third party.

The bill sailed through the Legislature, winning unanimous votes by the House and Senate. The new law will become effective next March.