Feb 23, 2015

Time Flies When You Are Having Fun, and When You Are Waiting for Payment on a Public Project

Most contractors, subs and suppliers understand that for privately-owned projects in PA and NJ, the threat or actual filing of a mechanics’ lien can often prove to be your only way of securing payment for labor or materials. This is particularly important where the party you have a contract with is no longer able to fulfill its payment obligations to you and others whose hard-work contributed to an improvement on the owner’s property.

Generally speaking, in Pennsylvania you may not file a mechanics’ lien claim against public property. In place of that right, the Public Works Contractors’ Bond Law requires that prior to any contract in excess of $5,000 for construction of any public building or other public work or improvement, any prime or general contractor working directly for the public entity must furnish both a performance bond and a payment bond. While the performance bond is designed to protect the public body by assuring that the work at issue is properly completed, the payment bond exists for the protection of that prime contractor’s subcontractors, as well as second-tier sub-subcontractors and suppliers at the project. While the mandatory existence of a payment bond does not guarantee subcontractors and suppliers prompt payment where the general contractor falls short, it is necessary that any contracting party with a potential claim carefully track statutory deadlines to preserve payment rights under such a bond. A quick reminder of those key deadlines follows:

  • If you hold a written or oral contract with the prime contractor or general contractor (i.e. the contractor holding a direct contract with the public owner), the Bond Law assumes that prime or general contractor knows whether you have or have not been paid monies due and owing. Therefore, there is no requirement that you preserve your potential bond claim by giving any advance notice to the general or prime contractor prior to filing your claim. All you are required to do is bring your claim in court sometime after 90 days have passed since your last labor or materials were furnished to the project, but in no event more than 1 year + 90 days after that last work. Your claim against the surety will be deemed to be too early if brought before the expiration of 90 days from your last work; and it will be stricken as too late if brought beyond the 90 days + 1 year expiration date.
  • If you hold a contract with a subcontractor of the prime or general contractor, the Bond Law assumes that the general contractor does not know whether you have or have not been paid (or whether its payment bond is at risk). Therefore, the Bond Law makes it mandatory for you to serve a written notice of your intention to file a bond claim on the prime or general contractor before your 90-day anniversary from last labor or materials supplied to the project. This gives the general contractor a “heads up” of your potential claim; and if you fail to serve this notice you risk losing the chance to look to the surety for payment at a later date. Assuming you provide notice of your claim before the expiration of 90 days, you must actually file that claim in court on or before your 90 day + 1 year anniversary of last work. The notice of claim must include an explanation of who you or your company are, who you held a contract with on the project, the nature of your work, the last day of your work, and the actual amount due and owing on that particular project.

Be very careful not to allow these claim deadlines to pass you by. Even the most reputable prime or general contractor is more than happy to see potential claims against its payment bond expire due to the failure to file in a timely fashion. Remember that these rules only apply to payment bonds on public works projects, and may not apply if the bond is issued for privately-owned construction not covered by the Bond Law. Additionally, do not subscribe to the common misunderstanding that ongoing negotiations toward payment, or that merely working with the surety company on a claim, will preserve your payment bond rights. There is only one way to be certain that your bond claim is filed in a timely fashion, and that is to institute a law suit in the court where the project was located. Any negotiations, side understandings or gentlemen’s agreements which do not include the timely filing of a lawsuit do not count. This applies to project retainage as well.

As noted above, while the timely assertion of a payment bond claim on a public project does not guarantee that a check will be waiting in your mailbox the following week, it does assure you and your business a place at the table where the flow of payment from a general contractor or one of its subs has trickled or stopped. Of course, there are other contractual and legal defenses and considerations which must be taken into consideration when determining whether to preserve and assert a bond claim, and they must be carefully discussed before you pull the trigger. However, if you don’t carefully track the timing of completion of your work, notices if necessary, and your end deadlines for filing, there is no trigger to pull.

Author: Robert R. Watson, Jr.

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