The state of Tennessee maintains its own set of laws mandating bonding for publicly funded projects, which are referred to collectively as Tennessee’s Little Miller Act.
Unlike many other states, Tennessee’s set of Little Miller Act statutes offer much more flexibility when it comes to bonding. Contractors engaging in state-funded or locally funded projects can obtain the equivalent of a surety bond by providing proof of the necessary collateral funds through certificates of deposit, U.S. Treasury bonds, or even cash.
At the same time, the laws include a requirement to have bonding in place to cover the necessary “taxes, licenses, assessments, contributions, penalties, and interest thereon” at the time they are due (T.C. §12-4-207, a).
To learn about these unique aspects of Tennessee’s Little Miller Act laws and other important details, read on.
Requirement for Bonding or Equivalent Securities
Tennessee Code §12-4-207 provides that all contractors performing contracts for public works in the state must be secured by a surety bond guaranteeing payment for all materials and labor provided. Unlike other states, no exception is made for contracts of a value below a certain threshold.
The payment bond only has to cover a minimum of 25 percent of the contract price, although individual contracts can potentially specify a higher amount at the discretion of the contract-awarding body. Similarly, a performance bond may be requested in a public works contract even if it is not a required component under Tennessee’s Little Miller Act laws.
Another unusual provision under T.C. §12-4-207 is that a bond can be substituted by an equivalent security or cash “at the percentage rate required for such bond.” These securities can include:
- U.S Treasury bonds
- General obligation bonds of the state of Tennessee
- Certificates of deposit, or similar evidence of deposit, provided by either a state or national bank or a state or national savings and loan association
- A letter of credit from either a state or national bank or state or federal savings and loan association
- Cash, which can earn interest paid to the contractor equivalent to funds in a local government investment pool in relation to T.C. § 9-4-704
Note that these requirements are just the minimums specified by law, and that certain state projects in Tennessee and projects using federal funding may require a payment and performance bond in the full amount of the contract value provided by a licensed surety.
Making a Bond Claim From Tennessee’s Little Miller Act
To make a claim upon a payment bond, a laborer or subcontractor must first provide written notice of completion of a service or subcontract, which must include itemized details for each amount owed, within 90 days of their last contribution to a project. They can send this notice either to the contractor who executed the payment bond or a public official. Sending a copy of an invoice to the local mayor for a municipal project or the governor for a state project is deemed sufficient notice (T.C. §12-4-205).
Required Bond for Taxes and Amounts Due to Public Entities
Another less-commonly seen trait of Tennessee’s Little Miller Act is that it requires a bonding amount set aside for all “taxes, licenses, assessments, contributions, penalties, and interest thereon” for all contracts with a value greater than $10,000.
This amount can be covered by a performance bond if payment of these fees is a required part of the awarded contract.
For contracts valued lower than $10,000, the state building commission, a state board of standards or a governing body can evaluate whether the fees have been paid on time through sufficient evidence (T.C. §12-4-207).
Answering Your Questions on Tennessee’s Little Miller Act
Even though Tennessee’s Little Miller Act seems quite flexible, the reality of contracts awarded in the state for public projects may differ from the bare minimum requirements stated here.
Contractors may still need to acquire payment or performance bonds based on the demands of an individual project. They may also need assistance maintaining the financial documentation necessary to provide an equivalent security instead of a surety bond.
If you have any questions about surety bonding in Tennessee or Tennessee’s Little Miller Act requirements, then do not hesitate to contact us today.