A surety faces potential exposure to a multitude of liabilities under payment and performance bonds issued for state and federally funded bonded projects as well as from the express obligations imposed by private common law performance and payment bonds. This paper, however, focuses only on a surety’s potential exposure for wage and related liabilities.
Under federal law, a surety faces possible liability under a Miller Act Payment Bond to laborers for the bonded principal’s failure to pay wages. Union trusts may also recover against a surety under a Miller Act Payment Bond for the bonded principal’s failure to remit union dues and benefit fund contributions. Still further, liability may arise under a Miller Act Performance Bond to the federal government for the bonded principal’s failure to remit withholding taxes on employee wages.
A surety is also exposed to wage liability under the Davis-Bacon Act for the bonded principal’s failure to pay the prevailing wage rate to laborers on a bonded project. Importantly, however, unlike a direct action against a surety under a Miller Act Payment Bond, an action against a surety predicated on a Davis-Bacon Act violation requires exhaustion of administrative remedies delineated in the Davis-Bacon Act prior to a laborer seeking judicial relief.
The Surety’s Exposure for Wages and Related Liabilities, Twenty Sixth Annual Northeast Surety and Fidelity Claims Conference (Sept. 17-18, 2015)