A. When a construction contract is awarded in excess of twenty-five thousand dollars ($25,000), the following bonds or security shall be delivered to the state agency or local public body and shall become binding on the parties upon the execution of the contract. If a contractor fails to deliver the required performance and payment bonds, the contractor's bid shall be rejected, its bid security shall be enforced to the extent of actual damages. Award of the contract shall be made pursuant to the Procurement Code [13-1-28 to 13-1-199 NMSA 1978] in the following manner:

(1) a performance bond satisfactory to the state agency or local public body, executed by a surety company authorized to do business in this state and said surety to be approved in federal circular 570 as published by the United States treasury department or the state board of finance or the local governing authority, in an amount equal to one hundred percent of the price specified in the contract; and

(2) a payment bond satisfactory to the state agency or local public body, executed by a surety company authorized to do business in this state and said surety to be approved in federal circular 570 as published by the United States treasury department or the state board of finance or the local governing authority, in an amount equal to one hundred percent of the price specified in the contract, for the protection of all persons supplying labor and material to the contractor or its subcontractors for the performance of the work provided for in the contract.

B. The state purchasing agent or the central purchasing office may reduce the amount of the performance bond required prior to solicitation to not less than fifty percent of the contract price if it is determined to be less costly or more advantageous to the state agency or local public body to self-insure a part of the performance of the contractor.

C. The state purchasing agent or the central purchasing office may reduce the amount of the payment bond required prior to solicitation of not less than fifty percent of the contract price if it is determined that it is in the best interest of the state agency or local public body to do so. Factors to be considered in order to make such a determination include, but are not limited to:

(1) the value and number of subcontracts to be awarded by the contractor; and

(2) the value of the contract.

D. Nothing in this section shall be construed to limit the authority of the state agency or local public body to require a performance bond or other security in addition to those bonds, or in circumstances other than specified in Subsection A of this section.

E. For contracts under twenty-five thousand dollars ($25,000) the state agency or local public body may impose in its sole and complete discretion the requirements of Subsections A, B and C of this section.

History: 1978 Comp., § 13-4-18, enacted by Laws 1987, ch. 109, § 1.

Cross references. — For corporations qualified as sureties, see 46-6-1 NMSA 1978.

Repeals and reenactments. — Laws 1987, ch. 109, § 1 repealed former 13-4-18 NMSA 1978, as amended by Laws 1975, ch. 251, § 1, and enacted a new section, effective June 19, 1987.

I. GENERAL CONSIDERATION.

Purpose of Little Miller Act. — The Little Miller Act [13-4-18 to 13-4-20 NMSA 1978] was enacted to protect suppliers of materials under any subcontract involving a state construction project. State ex rel. Elec. Supply Co. v. Kitchens Constr., Inc., 1988-NMSC-013, 106 N.M. 753, 750 P.2d 114.

Bond requirements. — The Little Miller Act [(13-4-18 to 13-4-20 NMSA 1978] requires a bond conditioned for the performance and completion of contract according to its terms, in "compliance with all requirements of law," and also for payment of labor and materials and is more encompassing than the federal Miller Act, 40 U.S.C. § 270A. Employment Sec. Comm'n v. C.R. Davis Contracting Co., 1969-NMSC-174, 81 N.M. 23, 462 P.2d 608.

Section gives remedy comparable to mechanic's lien. — Sections 13-4-18 and 13-4-19 NMSA 1978 are intended to provide a remedy comparable to a mechanic's lien to materialmen who provide supplies for a state government construction project. State ex rel. W.M. Carroll & Co. v. K.L. House Constr. Co., 1982-NMSC-150, 99 N.M. 186, 656 P.2d 236.

Not a lien statute. — The Little Miller Act [13-4-18 to 13-4-20 NMSA 1978] is not a lien statute; it merely provides a remedy for recovery of monies due for the doing of work or the furnishing of material on a state construction project. State ex rel. Mountain States Mut. Cas. Co. v. KNC, Inc., 1987-NMSC-063, 106 N.M. 140, 740 P.2d 690.

Bond required for public highway construction. — This section requires that a bond be given when the state enters into a contract for the construction of a public highway. Am. Sur. Co. v. Gilmore Oil Co., 83 F.2d 249 (10th Cir. 1936).

II. PERSONS AND ENTITIES PROTECTED.

Bond inurement. — Under New Mexico law prior to the passage of this act (Laws 1923, ch. 136), a public contractor's bond inured to the benefit of furnishers of labor, material, and supplies to the principal. First Nat'l Bank v. Caples, 17 F.2d 87 (5th Cir. 1927).

Public also protected. — Bond required of road contractor under this section is not only for protection of laborers and materialmen, but also for the protection of the public in tending to lower prices of labor and material by assuring payment of all claims. Silver v. Fidelity & Deposit Co., 1935-NMSC-098, 40 N.M. 33, 53 P.2d 459.

Third-tier suppliers of materials to government construction projects are entitled to protection under New Mexico's Little Miller Act [13-4-18 to 13-4-20 NMSA 1978]. Nichols Corp. v. Bill Stuckman Constr., Inc., 1986-NMSC-077, 105 N.M. 37, 728 P.2d 447.

Section applies to third-tier suppliers. — The Little Miller Act [13-4-18 to 13-4-20 NMSA 1978] applies to suppliers of materials under any subcontract involving a state construction project, including third-tier suppliers. State ex rel. W.M. Carroll & Co. v. K.L. House Constr. Co., 1982-NMSC-150, 99 N.M. 186, 656 P.2d 236.

When materialman may sue. — A bond to the state, conditioned for the performance by a highway contractor of the obligation of his contract, one of which obligations is to pay for materials used, may be sued on by a materialman. Southwestern Portland Cement Co. v. Williams, 1926-NMSC-052, 32 N.M. 68, 251 P. 380.

III. SURETY LIABILITY.

Surety's liability to employee leasing company. — General contractor's surety was liable to employee leasing company which furnished labor for project covered by surety's bond since leasing company hired the laborers, paid them weekly, and then billed general contractor in accordance with the terms of their contract. Eastland Fin. Servs. v. Mendoza, 2002-NMCA-035, 132 N.M. 24, 43 P.3d 375.

Exceptions to "supplies". — The word "supplies," used in the statute and in a contractor's bond, does not include premiums on workmen's compensation and public liability insurance, and recovery cannot be had against the surety for failure to pay such items. Anderson v. United States Fid. & Guar. Co., 1940-NMSC-054, 44 N.M. 483, 104 P.2d 906.

Surety's liability in absence of bond. — Where surety company signed bond to which the contract was attached, it was bound by the provision in the contract that "the contractor will give bond guaranteeing the payment of labor and materials" as required by statute, although such bond was never actually given, and the surety company was liable to the materialman. Southwestern Sash & Door Co. v. Am. Employers' Ins. Co., 1933-NMSC-025, 37 N.M. 212, 20 P.2d 928.

Rights of surety. — A surety that issues performance and payment bonds, and then satisfies claims against the contractor by paying laborers and materialmen, has superior rights as against the contractor's secured creditors to final progress payments and retainage funds held by the project owner. New Mexico State Hwy. & Transp. Dep't v. Gulf Ins. Co., 2000-NMCA-007, 128 N.M. 634, 996 P.2d 424.

When no release of surety. — Failure of school board to retain 15% of the contract price for a school building from the contractor, until final settlement, does not release the surety from liability to the laborers or materialmen. Southwestern Sash & Door Co. v. Am. Employers' Ins. Co., 1933-NMSC-025, 37 N.M. 212, 20 P.2d 928.

Extension of surety liability. — Although the general rule is that the liability of a surety cannot be extended beyond the fair import of the undertaking in the bond, this rule has certain exceptions: (1) where bonds are given pursuant to statute for a public or quasi-public purpose; or (2) when by special provision of statute the conditions and obligations prescribed in the statute requiring the bond must be read into the bond, whether contained therein or not, and in such cases, the liability of a surety will be determined by the conditions and obligations prescribed in the statute, in the first instance, on principles of public policy, and the second, by force of statutory provision. Employment Sec. Comm'n v. C.R. Davis Contracting Co., 1969-NMSC-174, 81 N.M. 23, 462 P.2d 608.

Punitive damages. — Although statutes requiring the filing of contractor's bonds and the terms of surety bonds, like New Mexico's Little Miller Act, are generally liberally construed to effect legislative intent and the purpose of the bond, clearly the language of the surety bond did not extend to liability for punitive damages. State ex rel. Conley Lott Nichols Mach. Co. v Safeco Ins. Co. of Am., 1983-NMCA-112, 100 N.M. 440, 671 P.2d 1151.

IV. TIME TO SUE.

Unless a governmental entity directly contracts for a shorter time-to-sue provision with either the contractor or the surety, a shorter time-to-sue provision contained in a performance bond is unenforceable. City of Santa Fe v. Travelers Casualty & Surety Co., 2010-NMSC-010, 147 N.M. 699, 228 P.3d 483.

Enforceability of time-to-sue provisions in performance bond. — Where a municipality contracted with a contractor to repair a tank; the contract did not contain a time-to-sue provision; the contractor obtained a performance bond from the surety; the performance bond contained a two year time-to-sue provision; the municipality declared the contractor in default and demanded performance from the surety; and the municipality sued the surety more than two years after the municipality declared the default, the two year time-to-sue provision in the performance bond was unenforceable and the six year statute of limitation under Section 37-1-3 NMSA 1978 applied. City of Santa Fe v. Travelers Casualty & Surety Co., 2010-NMSC-010, 147 N.M. 699, 228 P.3d 483.

Timeliness of notice. — Where contractor furnished bond provided for under this section and timely notice was given to contractor's surety only if a substitute item, the last one furnished on the job, was legally sufficient, notice was too late, since contractor had not been informed of the proposed change as required by contract provisions dealing with changes, and the item, never installed, was held not to be the last item furnished under the contract. Crane O'Fallon Co. v. Via, 1952-NMSC-101, 56 N.M. 772, 251 P.2d 260.

Law reviews. — For comment, "The Miller Act in New Mexico - Materialman's Right to Recover on Prime's Surety Bond in Public Works Contracts - Notice as Condition Precedent to Action," see 9 Nat. Resources J. 295 (1969).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 17 Am. Jur. 2d Contractors' Bonds §§ 51 to 148.

Loans or advances to building or construction contractor as within coverage of his bond, 164 A.L.R. 782.

Workmen's compensation insurance premiums as within coverage of contractor's bond, 164 A.L.R. 1468.

False receipts or the like as estopping materialmen or laborers from recovering on public work bond, 39 A.L.R.2d 1104.

Relative rights, as between surety on public work contractor's bond and unpaid laborers or materialmen, in percentage retained by obligee, 61 A.L.R.2d 899.

Liability of surety on bond for public works, 70 A.L.R.2d 1370.

Labor or material furnished a subcontractor for public work or improvement as within coverage of bond of principal contractor, 92 A.L.R.2d 1250.

Building contractor's liability on bond or other agreement to indemnify owner, for injury or death of third person resulting from owner's negligence, 27 A.L.R.3d 663.

What constitutes "public work" within statute relating to contractor's bond, 48 A.L.R.4th 1170.

State or local government's liability to subcontractors, laborers, or materialmen for failure to require general contractor to post bond, 54 A.L.R.5th 649.

20 C.J.S. Counties § 160; 63 C.J.S. Municipal Corporations § 1176; 72 Supp. C.J.S. Public Contracts §§ 41 to 61; 78 C.J.S. Schools and School Districts § 420 et seq.