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    Government Contracting Database

    Subcontractor Bond Coverage on Public Contracts

    The payment bond is a legal agreement and it is the first place that a contractor should look to see whether or not someone is protected by the bond. However, since the requirement for a public bond is statutory, its terms and conditions are also governed by the appropriate statute, as well as the case law which interprets the language of the statute. The recent trend in court decisions has been to extend payment bond coverage to an ever larger group, usually by broadening the definition of the term “subcontractor.”

    Federal courts apply a test established by the U.S. Supreme Court in a Federal “Miller Act” case, F. D. Rich Co. v. United States, ex rel. Industrial Lumber Co., 417 U.S. 116 (1974), where the Court adopted a functional definition of a subcontractor rather than a technical one, finding that an off-site manufacturer was a subcontractor even though it did no work on the site. The Court stated that the “test for whether one is a subcontractor” involves “the substantiality and importance of his relationship with the prime contractor.”

    Updated: August 7, 2018

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