When it comes to filing construction payment, there is a world of difference between private and public construction projects. And it’s very important to know what type of construction project you’re working on, since there’s a big difference between the two.
What is the Difference Between Public and Private Projects?
Easy. 99 times out of a 100, a project is private when owned by a private person or entity, and is public when owned by the government.
When the government is the United States or a federal agency, the applicable rules are found within the “Miller Act.” When the government is the state or a state agency, the applicable rules are usually found within a “Little Miller Act” statute. These vary state-by-state, a great resource on little miller acts across the country is linked below (and here).
Be very careful when performing work on a private school (i.e. private university) or for a non-profit agency, and even large public corporations. We sometimes think of these types of organizations as “public” agencies, but that does not necessarily render them a “public construction project.” Usually, such a designation is reserved for land and projects owned by the federal or state government. If you’re unsure, it’s a good idea to ask, or to hire an attorney to research the question.
Why Does the Type of Construction Project Matter?
If unpaid on a private project, the laws in most states allow you to file a mechanics lien against the property. This gives your company an actual interest in the real estate your labor or materials improved. The lien must be filed within a particular period of time, and if the lien is not paid, you’re required to “foreclose” upon the lien to obtain payment, which could result in the property being sold at auction to obtain the funds to pay off your claim.
If unpaid on a public project, there is a much different experience.
Generally, your company is not able to file a mechanics lien against a public project because most states (and the federal government) prohibit any party from gaining an interest in the public property. As a result, most public construction projects may only proceed if a “payment bond” is issued. In the event of non-payment on a public job, rather than file a lien the unpaid party will file a claim against the payment bond. Instead of foreclosing on the property, the claimant will “foreclose” – so to speak – against the lien, eventually resulting in payment.
Other Construction Payment Differences Based on Project Type
- Retainage rules vary greatly from state-to-state
- Prompt Payment is another area where each state’s rules and requirements often vary
- Lien Waivers are also treated differently in some states