Checklist · Insurance

Making a Payment Bond Claim and Responding to a Surety Demand: A Practical Checklist

40 U.S.C. § 3133

Type
Checklist
Jurisdiction
National
Date
2024-03-20
Topic
Insurance

This checklist walks a bonded construction payment problem from the first unpaid invoice through suit, and separately walks a contractor through responding to a surety demand. Stage 1 fixes the two dates that control everything. Stage 2 obtains the bond. Stage 3 runs the tier analysis. Stage 4 sends the ninety-day notice. Stage 5 assembles proof. Stage 6 covers suit. Stage 7 covers state projects. Stages 8 through 12 cover private projects, performance bond default from the owner's side, responding to a surety demand, the indemnity negotiation, and closing the file.

Making a Payment Bond Claim and Responding to a Surety Demand: A Practical Checklist

Insurance > Surety Bonds and Construction Payment Security | Published 20 March 2024 - Updated 26 March 2025 | UpLaw - uplaw.us

Stage 1 takes two minutes and is the entire case. Stage 4 costs nine dollars and preserves everything.

Stage 1 — Fix the Two Dates

☐ Write down the LAST DAY you furnished labor or material on this project. ______

⚠ Both Miller Act clocks run from this single date — not the invoice date, not the default, not the last promise to pay.

☐ Calendar day 90 from that date — the notice deadline (if you have no direct contract with the prime). ______

☐ Calendar one year from that date — the suit deadline. ______

☐ Confirm what the last day actually was. Substantial work under the contract, including authorized change order work, and deliveries of material incorporated or specially fabricated for the project all count.

⚠ What generally does NOT count and will not extend the clock: ☐ Punch list work ☐ Warranty callbacks ☐ Corrective work on defective installations ☐ Inspection visits ☐ Replacement parts for defective goods ☐ Work performed solely to extend the deadline

☐ Confirm ninety days have elapsed without full payment — that is when the right to sue accrues under 40 U.S.C. § 3133.

☐ If the last-work date is genuinely uncertain, use the earliest defensible date and proceed as though it controls.

Stage 2 — Get the Bond

☐ Determine the project type: ☐ Federal → Miller Act, 40 U.S.C. § 3131 and 40 U.S.C. § 3133 ☐ State or municipal → the state's Little Miller Act (Stage 7) ☐ Private → mechanic's lien and any voluntary bond (Stage 8)

☐ Request the payment bond copy in writing. On federal projects, from the contracting officer, by a person who supplied labor or material. On state projects, from the awarding authority. Do this at the start of the job, not when payment is late.

☐ Also request the prime contract and any modifications.

☐ From the bond, record: the surety's legal name and address; the bond number; the penal sum; the obligee; the principal's exact legal name; and any notice provisions the bond itself imposes.

☐ Verify the surety's qualification for a federal bond — 31 U.S.C. § 9304, 31 U.S.C. § 9305, 31 U.S.C. § 9306.

☐ Note the penal sum against the likely universe of claims. Where aggregate claims may exceed it, filing early improves position; priority rules appear at 31 U.S.C. § 9309.

☐ If a payment bond alternative was furnished under 40 U.S.C. § 3132, or a waiver applies under 40 U.S.C. § 3134, the analysis changes — confirm.

Stage 3 — Run the Tier Analysis

This determines whether you have a claim at all, before any question of merit.

☐ Map the contract chain in writing: Owner → Prime → ______ → ______ → you.

☐ Identify who you contracted with, by exact legal name.

☐ Classify yourself:

Tier Relationship Protected? Notice?
First direct contract with the prime yes no
Second direct contract with a subcontractor yes yes — 90 days
Third contract with a sub-sub, or with a supplier generally no n/a

☐ Characterize each intermediate party. A subcontractor performs a definable part of the prime contract — substantiality and function control. A materialman merely sells goods. This distinction decides whether you are second tier or third.

⚠ Clifford F. MacEvoy Co. v. United States ex rel. Calvin Tomkins Co., 322 U.S. 102 — a materialman supplying a materialman is outside the Act. J.W. Bateson Co. v. United States ex rel. Board of Trustees, 434 U.S. 586 — the tier limit applies regardless of the claimant's identity, including benefit fund trustees.

☐ Watch for joint ventures and affiliates that obscure the chain — a nominal second-tier position sometimes turns out to be third.

☐ If you are third tier on a federal project, say so early. Your remedies are the underlying contract claim, any trust fund statute, and negotiation — not the bond.

Stage 4 — Send the Ninety-Day Notice

Required only for second-tier claimants — but sending it costs nothing, so send it whenever tier is uncertain.

☐ Address it to the PRIME CONTRACTOR, not the surety, not the owner. (Some state acts require additional recipients — see Stage 7.)

☐ Include the four required elements: ☐ The amount claimed, stated with substantial accuracy ☐ The name of the party to whom the labor or material was furnished ☐ Identification of the project and contract ☐ A statement that payment has not been made

☐ Serve it in a permitted manner — any means providing written third-party verification of delivery to the prime at its residence or place of business, or in any manner in which a United States marshal may serve summons.

☐ Send within ninety days of the LAST WORK DATE from Stage 1.

☐ Keep the delivery confirmation permanently. It is an element of the claim, and the surety will demand it.

☐ Copy the surety and the contracting officer as a courtesy — not required, but it accelerates response.

☐ Frame it as routine, not accusatory:

"Our standard practice is to preserve payment bond rights on every public project. This notice is not a dispute and is not intended as one."

☐ Do not rely on emails, phone calls, or lien-style notices. The statute specifies the content and manner.

☐ Do not sign a pre-work waiver of bond rights. A waiver is void unless in writing, signed by the claimant, and executed after the labor or material was furnished.

☐ Make this a standing business process, not a litigation step. Companies that collect on bonds have a project intake field for "last day of work" and a calendar entry ninety days later.

Stage 5 — Assemble the Proof

☐ The contract chain: your subcontract or purchase order; the agreement above you; the prime contract if obtainable.

☐ Delivery and performance proof: signed delivery tickets, bills of lading, daily reports, sign-in logs, photographs, and inspection records.

☐ Financial records: invoices, pay applications, the account ledger, and payments received with dates.

☐ Change orders and written authorizations for extra work.

☐ Correspondence — every promise to pay, in writing.

☐ Fringe benefit records if the claim includes trust fund contributions, which are recoverable as sums justly due. United States ex rel. Sherman v. Carter, 353 U.S. 210.

☐ Retainage withheld from you — recoverable.

☐ Interest — check the subcontract and applicable law.

☐ Check the subcontract for an ATTORNEY'S FEE CLAUSE. There is no fee-shifting under the Act itself — F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116. The clause is where fees come from, and it should be negotiated into every subcontract.

☐ Segregate amounts attributable to this bonded contract from any separate, unbonded work.

Stage 6 — Suit on the Bond

☐ File within ONE YEAR of the last-work date. Not from the notice, the denial, or the last conversation.

☐ File in the United States district court for the district where the contract was performed, in the name of the United States for the use of the claimant, regardless of amount in controversy. 40 U.S.C. § 3133.

☐ Name the surety as the necessary defendant; customarily join the prime contractor.

☐ Plead affirmatively: the bond; the contract; your tier; the last-work date; the notice with proof of service; and the sums justly due. The surety will raise notice and tier — plead them first.

☐ Anticipate the defenses: ☐ Wrong tier — MacEvoy, 322 U.S. 102 ☐ Late or defective notice (content, timing, or service) ☐ Suit filed beyond one year ☐ Defective or incomplete work, backcharges, prior payment ☐ Material furnished for a different contract

☐ Note that federal law governs construction. F.D. Rich Co., 417 U.S. 116; Clearfield Trust Co. v. United States, 318 U.S. 363.

☐ Where aggregate claims may exceed the penal sum, file early and consider interpleader exposure.

☐ Expect settlement where tier and notice are clean — the merits are usually documentary, and the surety passes the loss to the principal under its indemnity agreement.

Stage 7 — State and Municipal Projects

⚠ Never apply the federal ninety-day rule to a state project.

☐ Read the state's Little Miller Act and confirm each of the following: ☐ Threshold contract amount triggering the bond ☐ Notice deadline — sixty, seventy-five, ninety, or one hundred twenty days — and from what event ☐ Additional recipients — many states require notice to the owner or awarding authority as well as the prime ☐ Required notice contents and form ☐ Limitations period — six months, one year, two years ☐ Tier coverage — some states protect more remote claimants than the federal Act ☐ Fee-shifting — many state acts provide attorney's fees, unlike the federal Act ☐ Interaction with the state prompt payment act, including statutory interest and penalties

☐ Obtain the bond from the awarding authority.

☐ Calendar the state deadlines separately from any federal habit.

☐ Check for a state trust fund statute making contract funds a trust for downstream claimants, which can create personal liability for principals and reach parties the bond does not.

Stage 8 — Private Projects

☐ There is no statutory bond requirement. Identify what security exists: ☐ Mechanic's lien — with its own notice and filing deadlines, which are usually shorter than you expect ☐ Voluntary payment bond — a common law bond governed by its own terms, not by statute ☐ Joint check agreement ☐ Trust fund statute, where the state has one ☐ Prompt payment act applicable to private work

☐ If a voluntary bond exists, read it as a contract. Its language controls: who is an obligee, who may claim, what notice is required, and what limitation applies. Some incorporate the Miller Act by reference; others impose shorter deadlines than the statute would.

☐ Check for a dual obligee rider naming a lender, which changes the surety's exposure and defenses.

☐ Preserve lien rights in parallel — a bond claim and a lien claim have different deadlines, and pursuing one does not preserve the other.

Stage 9 — Owner's Side: Performance Bond Default

☐ Give notice of potential default if the bond requires it, before declaring default.

☐ Declare default formally, in the manner the contract and bond specify, in writing.

☐ Terminate per the contract's procedure — not informally.

☐ Make written demand on the surety, tendering the balance of the contract funds.

⚠ DO NOT DISBURSE THE CONTRACT BALANCE. It is the surety's collateral. Prairie State Bank v. United States, 164 U.S. 227; Henningsen v. United States Fidelity & Guaranty Co., 208 U.S. 404; Pearlman v. Reliance Insurance Co., 371 U.S. 132.

☐ Allow the surety its election of options — finance the principal, tender a completion contractor, take over and complete, or pay damages up to the penal sum.

☐ Permit a reasonable investigation. The surety is entitled to one, and delay for that purpose is generally not bad faith.

☐ Avoid the errors that discharge the surety: ☐ Terminating without required notice ☐ Never formally declaring default ☐ Disbursing the contract balance ☐ Overpaying against the schedule of values ☐ Materially altering the contract without consent ☐ Delaying notice until completion costs escalate

☐ Document completion costs contemporaneously and observe the bond's own limitations period.

☐ Verify the surety's qualification under 31 U.S.C. § 9304 and 31 U.S.C. § 9305.

Stage 10 — Responding to a Surety Demand

For the contractor whose surety has paid or is demanding collateral.

☐ Treat it as urgent. A surety inquiry is a solvency event, not a paperwork matter.

☐ Get the general indemnity agreement and read: the conclusive-evidence clause; the right to settle; collateral on demand; the assignment; and who signed personally.

☐ Determine whether the surety actually paid, and whether the agreement conditions reimbursement on actual payment.

☐ Audit the claims the surety paid: ☐ Was the claimant in a protected tier? A surety that paid a third-tier claimant paid a claim it did not owe. MacEvoy, 322 U.S. 102 ☐ Was the ninety-day notice timely and compliant? ☐ Was suit filed within one year, where suit was required? ☐ Were the amounts supported?

☐ Identify offsets: contract balances the surety collected, salvage, and recoveries from others.

☐ Assess whether the collateral demand was reasoned or reflexive — some jurisdictions require good faith.

☐ Preserve the bad faith settlement theory where the principal disputed the claim in writing before payment.

☐ Understand the posture honestly. The conclusive-evidence clause makes this uphill, and the principal's belief that a claim was defensible is generally not a defense. The real leverage is that the surety paid claims the statute did not require it to pay.

☐ Note the bankruptcy consequence if insolvency follows: the surety generally takes retainage ahead of the trustee under Pearlman, 371 U.S. 132, subject to the government's prior setoff under United States v. Munsey Trust Co., 332 U.S. 234, with priority rules at 31 U.S.C. § 9309.

Stage 11 — Negotiating the Indemnity Agreement (Before Signing)

☐ Cap collateral demands, or require a reasoned exposure calculation rather than a bare demand. ☐ Condition reimbursement on ACTUAL PAYMENT, not on reserves. ☐ Notice and an opportunity to cure before any demand. ☐ Carve out spousal indemnity. ☐ Sunset personal indemnity after a defined period of clean performance. ☐ Limit the conclusive-evidence clause where the principal disputed the claim in writing before payment. ☐ Add an express duty of good faith in settling claims. ☐ Define "loss" to exclude costs incurred unreasonably. ☐ Understand what you are signing: this is not insurance. Every dollar the surety pays becomes your debt, and your house is collateral.

⚠ These terms are obtainable for established contractors at inception, and unobtainable afterward.

Stage 12 — Closing the File

☐ Confirm payment received and the claim released in writing ☐ Confirm any lien or bond claim is formally withdrawn ☐ Record the last-work date, notice date, and delivery confirmation permanently ☐ Update the project intake form so the next job captures both dates automatically ☐ Negotiate an attorney's fee clause into the next subcontract ☐ Retain: bond copy, notice with proof of delivery, contract chain, delivery tickets, invoices, and correspondence for at least the limitations period plus two years

Ten Failures That Kill Bond Claims

  1. Not recording the last day of work. Both clocks run from it.
  2. Sending the ninety-day notice on day ninety-five because the general kept promising payment.
  3. Relying on a warranty callback to restart the clock.
  4. Assuming second-tier status when the party above you was a materialman, not a subcontractor.
  5. Suing more than a year after last work.
  6. Sending notice to the surety or owner instead of the prime.
  7. Notice that omits the amount or the party supplied.
  8. Applying the federal ninety-day rule to a state project.
  9. Signing a subcontract with no attorney's fee clause — there is none in the Act.
  10. Signing a general indemnity agreement without reading the collateral-on-demand clause.

The Two-Minute Version

Write down the last day you worked. Everything runs from it.

Day 90: notice to the prime contractor, in writing, stating the amount and who you supplied.

Day 365: suit in the district where the work was performed.

Check your tier — first and second are protected; third generally is not.

Get the bond copy from the contracting officer at the start of the job.

On a state project, read the state statute. The deadlines are different.

Check your subcontract for a fee clause — the Act has none.

If you are the contractor: the general indemnity agreement is the document that matters, and it is negotiable only before you sign it.

Notice Letter Template

[Date] · Sent by certified mail, return receipt requested, and by [courier with delivery verification]

[Prime Contractor legal name and address]

Re: Notice of claim under 40 U.S.C. § 3133 — [Project name], Contract No. ______

This notice is given pursuant to 40 U.S.C. § 3133 and preserves the undersigned's rights under the payment bond furnished for the above contract.

1. Claimant: [legal name, address]. 2. Party to whom labor or material was furnished: [exact legal name of the subcontractor you contracted with]. 3. Labor and material furnished: [describe — e.g., "furnishing and installation of HVAC ductwork and related materials"]. 4. Last date labor was performed or material supplied: . 5. Amount claimed: **$**, which remains unpaid.

More than ninety days have elapsed since the undersigned last furnished labor or material, and payment has not been made in full.

Our standard practice is to preserve payment bond rights on every public project. This notice is not intended as a dispute with your organization, and we remain available to resolve the balance.

[Signature · Title · Phone · Email]

cc: [Surety] · [Contracting Officer]

Retain permanently: this letter, the certified mail receipt, and the third-party delivery verification. They are elements of the claim.

Scripts

Asking for the bond at the start of a job. "Before we mobilize, could you send me a copy of the payment bond for this project? We request it on every public job as a matter of routine — it just goes in our file with the contract."

Sending the notice without damaging the relationship. "You'll get a formal notice letter from us this week. It's our standard ninety-day preservation notice on every public project, it goes out automatically, and it isn't a dispute — I wanted you to hear it from me before it arrived in the mail."

When the general says the notice is unnecessary. "I understand, and I appreciate that you intend to pay. But if I don't send it within ninety days of my last day on site, the claim disappears entirely — that's the statute, not my choice. It costs me nine dollars and costs you nothing."

Responding to a surety's collateral demand. "Before we respond to the demand, please provide: the claims paid or reserved, with the claimant's tier and the date of their ninety-day notice; proof of actual payment; and the calculation supporting the collateral figure. We dispute [claimant]'s claim as third-tier and outside 40 U.S.C. § 3133."

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