The Bonding Gap

On February 14, 2026, Mare Island Dry Dock filed Chapter 11 in the Eastern District of California. The company had informed the City of Vallejo on December 30, 2025 that it would permanently close operations, attributing the shutdown to the loss of a critical Coast Guard contract. Among the 20 largest unsecured creditors in that filing was MD Electric Group, listed at $417,568.43 for marine electrical services delivered in good faith on federal vessels.

We are not writing this article as a legal brief. We are writing it because a gap exists in federal procurement law that every marine subcontractor in America needs to understand, and that nobody in Washington seems to want to talk about.

The Protection That Exists for Buildings

The Miller Act has been federal law since 1935. It requires prime contractors on federal construction projects over $150,000 to furnish two bonds before work begins: a performance bond protecting the government, and a payment bond protecting subcontractors and suppliers.¹ If the prime contractor fails, goes bankrupt, or refuses to pay, the subcontractor files a claim against the payment bond and receives the money owed. The surety pays. The subcontractor continues operating. The federal construction industry has functioned under this protection for 91 years.

This is not a controversial provision. It is the backbone of federal construction subcontracting. No reasonable electrical contractor would bid on a federal building project without verifying that Miller Act bonds were in place. The statutory protection is so foundational that most subcontractors do not consciously think about it. They assume the safety net is there because federal law requires it to be there.

The Gap That Exists for Vessels

The Miller Act applies to contracts for the construction, alteration, or repair of any public building or public work of the Federal Government. The federal courts and the FAR have consistently interpreted this language to apply to buildings and land-based public works. Ships are not buildings. Vessel repair contracts are classified as service contracts, not construction contracts, under the FAR.²

The payment bond protections that every subcontractor on a federal building project takes for granted do not apply to federal vessel repair work.

Not as a policy choice by Congress. Not because anyone analyzed whether marine subcontractors need less protection than commercial electrical subcontractors. Because the Miller Act was written in 1935 to address a problem in federal construction, and the legal interpretation that followed drew a line between buildings and vessels that has never been revisited in 91 years.

The Department of Defense does have a procurement mechanism for vessel repair bonding. DFARS 252.217-7008 provides a clause for vessel repair job orders that allows contracting officers to require bonds. The operative word is "may." Payment and performance bonds are permitted. They are not required. On most vessel repair job orders issued under DoD master agreements, they are not obtained.³

The result is that a marine electrical subcontractor performing work on a federal vessel has fundamentally less payment protection than the same subcontractor doing identical work on a federal building. Same skilled trades. Same federal customer. Same statutory obligations for safety, environmental compliance, and workmanship. One context has the Miller Act. The other has a discretionary DFARS clause that is not consistently invoked.

What the Gap Costs When a Shipyard Fails

When a federal construction prime contractor files bankruptcy, the subcontractors' claims are paid by the surety under the payment bond. The subcontractors continue operating. The work gets completed. The public interest is served.

When a federal vessel repair prime contractor files bankruptcy, the subcontractors are general unsecured creditors in the bankruptcy proceeding. Their claims are paid pennies on the dollar, if at all, after secured creditors and administrative claims are satisfied. The subcontractors absorb the loss. Some continue operating. Some do not.

Mare Island Dry Dock is not an anomaly. It is the predictable consequence of a procurement structure that concentrates financial risk in subcontractors who have no statutory protection against prime contractor failure. Every subcontractor on every federal vessel repair contract in America today is operating with that exposure. Most are not aware of it until a prime contractor bankruptcy forces the awareness.

What the Industry Already Knows

The administration has proposed Maritime Prosperity Zones to attract private investment into shipyard regions.⁴ Congress has authorized over $5.8 billion in shipbuilding industrial base investment since 2014, with another $12.6 billion planned through fiscal year 2028.

But here is the paradox no one in Washington is talking about. You cannot build the maritime industrial base on the backs of subcontractors who have no payment protection when the shipyard above them fails. The electricians, the pipefitters, the welders, the marine electronics installers, the control panel manufacturers. These are the companies that do the actual work. And they are the ones absorbing the losses when the system breaks down.

Companies that have operated for decades as DoD contractors are not new to this industry. They understand risk. But no subcontractor should operate in a system where performing work in good faith on a federal vessel carries fundamentally less payment security than performing identical work on a federal building.

What Needs to Change

We are not filing this article as a legal brief. We are raising it as a conversation. But the questions are specific.

First: Should Congress amend the Miller Act or the FAR to mandate payment bonds on all federal vessel repair contracts above the $150,000 threshold, eliminating the discretionary gap that currently exists under DFARS 252.217-7008?

Second: Should the DFARS master agreement clause for vessel repair change the word "may" to "shall" for payment bond requirements on job orders exceeding $150,000?

Third: Should the Department of Defense, at minimum, be required to track and report how often bonding is waived on vessel repair contracts, so that Congress and the contracting community can assess the actual scope of subcontractor exposure?

Fourth: Should subcontractors in the marine trades be required to verify bonding status on every job order before mobilizing, the way subcontractors on construction projects verify bonding as a condition of starting work?

These are not radical proposals. They are extensions of protections that have existed in federal construction for 91 years. They ask only that the tradespeople who build, repair, and maintain America's vessels receive the same basic financial protection as the tradespeople who build, repair, and maintain America's buildings.

A Direct Challenge

This article is addressed to a specific audience. The contracting officers, the policy makers, the surety professionals, the construction attorneys, and the fellow subcontractors who understand what it means to deliver skilled labor and materials with no guarantee of payment.

If we are wrong about how this system works, we want to hear it. If there are protections we have missed, claims we should be filing, or mechanisms we are not seeing, this is the conversation where we need that expertise.

But if we are right. If this gap is real. If the federal maritime subcontracting community is operating without the payment protections that every other federal subcontractor takes for granted.

Then someone needs to say it out loud. We just did.