T his report provides an overview of the payment and other protections for subcontractors on certain federal prime contracts under the Miller Act, the 1988 amendments to the Prompt Payment Act, and the Small Business Act. Congress enacted these statutes to give subcontractors rights and remedies they would not otherwise have because of legal doctrines relating to sovereign immunity, privity of contract, and freedom to contract. Payment and other protections for subcontractors on federal contracts are of perennial interest to Members and committees of Congress, in part, because many subcontractors are small businesses, and it is the "declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small business concerns." A Depression-era enactment named after its sponsor, Representative John Elvis Miller of Arkansas, the Miller Act creates a federal remedy for subcontractors who "furnish[] labor or material in carrying out work provided for" in certain federal construction contracts. Absent the Miller Act, such subcontractors would generally have to rely on breach of contract actions against the prime contractor under state law to recover payments due to them because of the operation of the legal doctrines of privity of contract and sovereign immunity. Although working pursuant to a subcontract under a federal contract, subcontractors generally cannot enforce the payment or other terms of the contract or subcontract against the federal government because there is no privity of contract, or direct contractual relationship, between the subcontractor and the government. The subcontractor's contract is with the prime contractor, as is the government's contract; there is no contract between the subcontractor and the government. Additionally, because the government has sovereign immunity and cannot be sued without its consent, the subcontractor cannot place a mechanic's lien on the improved property, as it potentially could with a private construction project. The Miller Act requires that, before any contract of more than $150,000 is awarded for the construction, alteration, or repair of a "public building or public work of the Federal government," the contractor furnish two bonds to the government. The first of these is a performance or completion bond, which would compensate the government for any defects in the contractor's performance under the contract. The second is a payment bond, which would assure that certain persons who supply labor or materials used in carrying out the work provided for in the contract receive payment. Both bonds become legally binding upon award of the contract, and their "penal amounts," or the maximum amounts of the surety's obligation, must generally be 100% of the original contract price plus 100% of any price increases. The act further authorizes "[e]very person that … furnished labor or material" in carrying out work provided for in the contract who was not paid in full within 90 days of completing performance to bring a civil action on the payment bond for the amount due. However, "[e]very person," as used here, has been construed to include only first- and second-tier subcontractors. Lower-tier subcontractors are excluded, as are "materialmen" or other parties who supply materials or labor without a contract. These exclusions are partly based on policy considerations and partly based on the definition of "subcontractor." Prime contractors would have greater difficulties in protecting themselves from liability to remote tiers of subcontractors or materialmen than they would in protecting themselves from liability to first- or second-tier subcontractors. Materialmen are excluded because the usage of "subcontractor" in the building trades includes only "one who performs for or takes from the prime contractor a specific part of the labor or material requirements of the original contract." The term "thus exclude[s] ordinary laborers and materialmen." Within one year of completing performance, first- and second-tier subcontractors seeking payment on a Miller Act bond must file suit in the name of the United States in the federal district court for the area where the subcontractor provided labor or services under the contract. They must also provide the prime contractor with notice served in the same manner as a summons, or by any other means that provides written, third-party verification of delivery to the contractor at its place of business or primary residence. Failure to provide proper notice may bar recovery from either the prime contractor or the surety. Assuming proper notice, the amount a subcontractor may recover if it prevails in the litigation is generally based on the contract amount for the goods or services or, if no amount is specified in the contract, the amount that a person in the subcontractor's position at the time and place the services were rendered would have spent completing those services. However, after performance is completed, subcontractors may waive in writing their right to bring a civil action, in which case no recovery may be made on the bond. Contractors that fail to obtain performance bonds as required under the Miller Act are in breach of their contract with the government and could potentially be terminated for default by the government. However, the subcontractor cannot recover from the government for the prime contractor's failure to obtain a bond, or its failure to obtain a sufficient bond. Enacted in response to agencies' widely reported delays in paying their bills, the Prompt Payment Act of 1982, as amended, generally requires federal agencies to pay interest on any payments they fail to make by the date(s) specified in the contract, or within 30 days of receipt of a "proper invoice," if no date is specified in the contract. This act originally applied only to payments made by the government to prime contractors, although it encompassed payments under all types of contracts (e.g., manufacturing, construction, service). However, the Prompt Payment Act was amended in 1988 to extend certain payment protections to subcontractors on federal construction contracts, in part, because agencies' continued practice of paying late created particular difficulties for subcontractors on construction projects. At the time when these amendments were adopted, subcontractors reportedly performed 80% of the work on construction projects, and subcontractors on construction contracts generally do not get paid until the prime contractor has been paid. Without the 1988 amendments, or similar contract terms, prime contractors would generally be free to agree to whatever payment terms they wish with their subcontractors and would not necessarily pay their subcontractors as quickly. The 1988 amendments require that every construction contract awarded by a federal agency contain clauses obligating the prime contractor to (1) pay the subcontractor for "satisfactory performance" under the subcontract within seven days of receiving payment from the agency and (2) pay interest on any amounts that are not paid within the proper time frame. The contract must also obligate the prime contractor to include similar payment and interest penalty terms in its subcontracts, as well as require its subcontractors to impose these terms on their subcontractors. This latter provision, requiring subcontractors to impose the terms on their subcontractors, ensures that the payment and interest penalty requirements "flow down" to all tiers of subcontractors. The prime contractors would have obligations to any first-tier subcontractors, who would have obligations to second-tier subcontractors, who would have obligations to third-tier subcontractors, etc. The 1988 amendments do, however, allow contractors and higher-tier subcontractors to negotiate terms permitting them to retain or withhold payment from subcontractors or lower-tier subcontractors without incurring interest penalties. "Retainage" is generally said to occur when a contractor holds back a specified percentage (often 10%) of each progress payment otherwise due under a construction contract as a routine matter, or because of the subcontractor's failure to perform. Retainage can be seen as a type of withholding. However, the term "withholding" can also be used more broadly to describe the nonpayment of contract amounts because of debts of the contractor outside of the contract. Contractors withholding funds under a contract subject to the Prompt Payment Act must generally provide both the procuring agency and the subcontractor with written notification of withholding, and the amount withheld cannot exceed the amount specified in this notice. Contracting parties often agree to retainage and withholding in order to encourage timely completion of the contract and ensure full understanding between the parties regarding the terms of completion. Because the payment and interest clauses of the contract apply only to the parties, the federal government's obligations run only to the prime contractor. Prime contractors have the duty to pay subcontractors, and subcontractors have the duty to pay lower-tier subcontractors. The federal government cannot be interpleaded as a party to any disputes between contractors and subcontractors over late payments or interest, and contractors' obligations to pay subcontractors also cannot be passed on to the federal government in any way, including by contract modifications or cost-reimbursement claims. In 2011-2012, the Obama Administration issued guidance that supplements the requirements of the Prompt Payment Act as to the payment of small business contractors and subcontractors. Initially, this guidance called for agencies to pay small business contractors within 15 days of receipt of a proper invoice. However, subsequent guidance sought to address payment of small business subcontractors by calling for agencies to "accelerate payments to all prime contractors, in order to allow them to provide prompt payments to small business subcontractors." Subsequently, in November 2013, the Administration amended the Federal Acquisition Regulation (FAR) to implement the accelerated payment policy as to small business subcontractors . As amended, the FAR requires that agencies' prime contracts include terms that obligate the contractor, [u]pon receipt of accelerated payments from the Government, [to] make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor. The FAR amendment also requires that agencies' contracts include terms which obligate prime contractors to incorporate similar language in their subcontracts with small businesses (including those for the acquisition of commercial items), thereby binding themselves to make accelerated payments to their subcontractors.