The Miller Act provides that a general contractor, who enters into a contract for the construction, alteration, or repair of any federal building, which contract exceeds the sum of $ 100,000, shall furnish a performance bond on behalf of the federal government. The performance bond guarantees that the contractor will perform all the conditions of the contract and will pay the government all taxes that are imposed by the government.
A general contractor in a federal construction project obtains a performance bond from a surety company. The performance bond makes the surety company liable for all monetary claims by the government against the contractor. The performance bond is solely for the benefit of the government. It does not protect subcontractors, materialmen, or suppliers.
A surety company becomes involved in a federal construction project when a contractor has been notified of its default under a contract. The government is required to notify the surety company of any potential default and is required to notify the surety company of its intention to terminate the contract based on default. Although the surety company is entitled to complete the project, the surety company is not obligated to complete the project and may propose any action that may limit its liability. Such actions include reinstatement of the contractor through financial assistance by the surety company, the government's completion of the project, or the location of another contractor.
A surety company, which decides to complete a federal construction project after a contractor has been terminated for default, has a right to bring an action against the government for any payments that were retained by the government or for any claims of the contractor against the government. The surety company also has a right to assert defenses and counterclaims against the government if the government brings an action to recover under the performance bond.
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