payment bond Archives - Attorney Scott S. Orenstein

IN CASE YOU WERE WONDERING, MECHANIC’S LIENS AND PAYMENT BONDS REALLY DO PROTECT THOSE THAT SUPPLY LABOR, MATERIALS AND/OR SERVICES

In poker, you have to play the cards you are dealt, but, if you have a bad hand, you can fold. In litigation, if you do not have a strong argument, you should negotiate a settlement, but that is not always possible because the opposing party’s demands may be so unreasonable that you might as well go to trial and see what happens. It is at those times where an attorney might attempt to get creative. Recently, our Appellate Court upheld a trial court decision that held a surety liable on both a payment bond and a mechanic’s lien substitution bond despite the nine special defenses that it raised. See O & G Indus. v. Am. Home Assur. Co., 204 Conn. App. 614 (2021). Some of these special defenses were novel, and, as a result, this decision gives us some greater insight into lien and bond claims.

In O & G Indus. v. Am. Home Assur. Co., the plaintiff brought an action against a surety that had issued both the subject project’s payment bond and a bond that was substituted for the plaintiff’s mechanic’s lien. Id. By way of brief background,

Remedial Work Does Not Extend the Deadline to Commence an Action on a Payment Bond

As most contractors are aware, if they are not paid for their labor, materials, and/or services, they can strengthen their position prior to filing a lawsuit by filing a mechanic’s lien, or by making a claim against the project’s bond claim. Of course, both options are not generally available. Typically, the choice is based upon whether the project is private or public. On private projects, a contractor (or supplier) is allowed to gain a security interest in the property by filing a mechanic’s lien. On public projects, federal and local governments passed laws requiring the general contractor on public projects to post “payment bonds,” which guarantee the payment of those who supply labor, materials, and/or services to the property. In other words, because governments were not willing to let public lands be subject to foreclosure, on public projects, statutorily required payment bonds were created to take the place of mechanic’s liens. Of course, private owners may require general contractors to post payment bonds on private projects as well, but this post only addresses the statutory payment bonds required on public projects.

The law that requires payment bonds on federal projects is known as the Miller Act. The various state laws that require payment bonds on state projects are often referred to as “Little Miller Acts.” The requirements are the Miller Act and the various Little Miller Acts are generally similar.

A Recent Superior Court Decision May Affect Subcontractor/Supplier Mechanic’s Liens

In a recent decision, the Superior Court discharged the mechanic’s liens of several subcontractors, because the general contractor had already filed a lien for the unpaid contract balance. Wegrzyniak v. Hanley Constr., LLC, WL 5706192 (Conn. Super. Ct. Oct. 30, 2017). Insofar as any substantial construction project will involve a general contractor, subcontractors, sub-subcontractors, and suppliers, there are obviously many potential lien claimants. Nonetheless, the court said that “[f]or good reasons, the mechanic’s lien statutes don’t permit multiple liens,” and with regard to the subcontractor whose lien included a claim for extra work, the court said that “[w]ithout an agreement to support the additional work…, [the subcontractor’s] lien must be discharge.” Id. In light of the foregoing, Wegrzyniak may stand for the proposition that subcontractors, sub-subcontractors, and/or suppliers are precluded from filing mechanic’s liens when the general contractor files a mechanic’s lien covering the entire project, but, in my opinion, subcontractors, sub-subcontractors, and suppliers should continue filing their own mechanic’s liens.

To summarize the reasoning of the Wegrzyniak decision in plain English, because the court understood that the property owner should not be held liable for more than the amount it agreed to pay the general contractor,

The City of Hartford Stadium Authority Has Terminated the Developer of Dunkin Donuts Park — Here’s What Comes Next

If you are a trade contractor or supplier working on Dunkin Donuts Park in Hartford, Connecticut, you have undoubtedly heard that the City of Hartford Stadium Authority (Authority) has terminated the developer and made claim against its insurer. Although the news reports are referring to the situation as an “insurance claim,” those reports are inaccurate. The Authority has submitted a bond claim. If your work is currently in limbo because of the Authority’s termination, your next steps depend upon how the surety that posted the subject bonds intends to respond.

As more fully explained below, there are different types of bonds that were most likely posted by the developer.

[T]here are important differences between performance bonds and commercial general liability contracts… The purpose of a performance bond is to guarantee the completion of the contract upon default by the contractor. Accordingly, suretyship is properly viewed as a form of credit enhancement in which premiums are charged in consideration of the fundamental underwriting assumption that the surety will be protected against loss by the principal.

Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 791-792 (Conn. 2013). In other words, unlike an insurance claim that will be paid if based upon a covered loss,

Scott Orenstein
06.20.2016
Bond Claim, Connecticut Construction Law
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With Payment Bond Claims, Different Rules Apply to the Bond Claimant and the Surety

As previously discussed in this Blog, Conn. Gen. Stat. § 49-41 requires each general contractor on a public works projects valued over $100,000 to post a payment bond that guarantees payment to the general contractor’s subcontractors and suppliers. The payment bond also guarantees payment to each subcontractors’ sub-subcontractors and suppliers.

The procedure by which such subcontractors, sub-subcontractors, and/or suppliers may make claim against such payment bonds is described in Conn. Gen. Stat. § 49-42. With the exception of claims for retainage, the statute requires those making claim on the payment bond to submit their “notice of claim” within 180 calendar days after the last day that it worked and/or supplied materials. The statute then provides the surety that issued the payment bond with 90 calendar days to pay or deny the claim. Until recently, both time provisions were mandatory. See Barreira Landscaping & Masonry v. Frontier Ins. Co., 47 Conn. Supp. 99, 110, 779 A.2d 244, 252 (Super. Ct. 2000)(holding that both the notice of claim and the surety’s response both much be made within the time specified by statute.)

With regard to the 90 day time limit, the court in Barreira Landscaping &

Payment Bond Claimants Should Consider Additional Causes Of Action

It is not uncommon for sureties that issue payment bonds to deny claims brought by subcontractors and suppliers. After an “investigation”, a surety’s typical response is that the claim is denied because the debt is the subject of a good faith dispute between the bond claimant and the surety’s principal. Of course, questions often arise regarding the thoroughness and completeness of the surety’s investigation. For example, no one expects the surety’s bond principal to state that there was no legitimate reason for its nonpayment and that the surety should pay the subcontractor or supplier whatever amount it claims due, which raises the question of whether the surety should have to do more than ask its principal why the bill was not paid. Moreover, sureties – like everyone else – do not want to part with money unless they are forced to do so.

I recently handled a matter where a general contractor did not pay a subcontractor more than half a million dollars. There was no justification for the nonpayment. The surety, however, still failed to pay or deny the claim within 90 days as required by Conn. Gen. Stat. Sec. 49-42. Instead, the surety took no action.

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