Payment Bond Claims

Design professionals, contractors and suppliers who provide work or services for either federal or state construction projects sometimes run into difficulty obtaining payment for the work or services that they performed. The reasons for this difficulty may be as simple as the owner’s lack of available funding for the project, the owner’s failure to pay the contractor, or the contractor’s failure to pay his subcontractors or suppliers.

Although these claimants may file a breach of contract action to recover monetary damages, those remedies are typically limited to the party with whom that claimant is in privity, or has a direct contract. Depending on dollar value of the construction project and the relationship between the claimant and the owner or general contractor, however, the claimant may be able to bypass the privity requirement and file a claim on the payment bond posted by the general contractor for the project.

Payment bonds are statutory remedies for nonpayment. Specifically, they are securities posted by a general contractor (as the principal) with a surety, and in favor of a property owner (as the obligee). These securities protect those who furnish labor or materials on a construction project and are usually equivalent to the value of the specific construction contract.

Payment bonds on federal construction projects are governed by the Miller Act and payment bonds on Maryland state construction projects are governed by the Maryland Little Miller Act. Both the federal Miller Act and Little Miller Act set forth:

• the relationship that must exist between the payment bond claimant and the owner or general contractor in order to assert a bond claim,
• whether the work or services performed by the claimant are covered under the Act,
• the notice requirements (if any) which a claimant must satisfy prior to making a claim on the bond, and
• the procedure for asserting the bond claim.

There are, however, some differences between these statutes that make it necessary to carefully review the applicable provisions before filing a payment bond claim.

Also, although payment bonds are usually only required on public construction projects, some owners on private construction projects also require their general contractors to obtain payment bonds to guarantee payment to their subcontractors and suppliers on the project. For payment bonds on private construction projects, though, the class of available claimants, any notice requirements and/or the requisite limitations periods for asserting claims on the bond may differ from the requirements of the federal or state statutes and must be evaluated before taking action.

A detailed understanding each of these issues is crucial to the successful assertion of a payment bond claim and recovery of monies due and owing to a claimant or, alternatively, the successful defense of a payment bond action against a general contractor and surety.

The attorneys at Goldberg & Banks have considerable experience with both representing payment bond claimants and defending payment bond claims asserted against general contractors and sureties.

If you would like to schedule a consultation to discuss a payment bond issue, please call 443.641.9422.