Can Federal Funds Be Used for State Construction Projects?

Government construction contracts can provide an opportunity for contractors to gain a great deal of profit—but contractors must be able to distinguish the placement of federal money in both federal and state projects.

In the state of California, most federal funds come through FEMA to help repair roads, bridges and more. Most federally funded projects can include grants or tax incentives, however, being federally funded does not equate to a federal project. "Due to recent weather events in California, the vast majority of projects where federal money is going into are under the California Department of Transportation (Caltrans)," said Chris Ring of NACM's Secured Transaction Services. Public works in construction such as alterations or repairs done under contract can be paid through state funds, according to the State of California's Department of Industrial Relations. "So, the state of California is the property owner for these jobs. State statutes are different from the federal statute."

Contractors also should note that federal funds do not automatically change who the property owner is. The Miller Act ensures subcontractors and material suppliers who work on federal projects get paid. "A contractor or material supplier may think federal dollars mean federal projects, falling under the Miller Act," said Ring. "Material suppliers and subcontractors would not have to serve any preliminary notices under the act to maintain their claim against the general contractor's payment bond. But state projects such as Caltrans projects, a preliminary notice is required."

In California, when supplying materials, services or labor to both subcontractors or general contractors, a 20-day notification is required to be sent out in order to retain the right to file a mechanic's lien or bond claim. In conclusion, just because it's federal funds, doesn't mean it's a federal project.

-Kendall Payton, editorial associate 

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Monday, 27 May 2024

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