Subcontractors, suppliers, and labor on construction projects face a unique but constant threat. What happens when the prime contractor on their projects does not pay for their work or materials?
If the prime contractor was bonded, there is recourse. However, filing a claim can be complex. In this guide, we will help you understand and follow the steps to complete the process successfully.
Important note: There are multiple solutions for unpaid subcontractors, suppliers, and labor. Depending on the jurisdiction, claimants can also file liens against the property or contract funds.
They can also submit verified statements of claim to the municipality where the project is located. Lastly, a direct lawsuit is also an option. Filing a payment bond claim is a separate approach and not a prerequisite to these other options.
Two important things to remember about claims: Hire a construction lawyer and carefully review the contract and bond forms. This is not something you can do yourself. The contract and bond terms will greatly affect your ability to successfully make a claim.
Step 1: Understand the Basics
A surety bond is a contract between a bonding company, project owner, and contractor. It ensures the contractor will complete their duties as agreed. If the contractor fails, the surety steps in to ensure payment to subcontractors, suppliers, and laborers.
Three main types of prime contracts can tie to payment bond claims.
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Federally funded projects are subject to the Miller Act (40 U.S. Code §§ 3131–3134).
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Local statutes (often called Little Miller Acts) direct state and municipal projects.
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Local laws may apply to private construction contracts, but the focus is on the contract terms and bond requirements.
Step 2: Determine Eligibility (Review the bond form and subcontract)
Not everyone involved in a construction project can file a claim against a payment bond. Typically, subcontractors, suppliers, and laborers who have a direct contract with the prime contractor are eligible. On federal Miller Act projects, second-tier subcontractors and suppliers are also eligible.
Other projects can have different definitions of eligible claimants. Check your contract and the corresponding payment bond form to ensure you have the right to make a claim.
There are also timing mechanisms which must also be reviewed and considered. For example, second-tier subcontractors and suppliers on Miller Act projects must inform the prime contractor in writing. This must be done within 90 days of completing work or providing materials.
For non-federal projects, these timing mechanisms can differ. The bond form will typically outline the exact deadlines, however state or local statutes may supersede this language.
Additionally, it can be possible for the prime contractor to be liable for payment even when the surety is not. As referenced above, claimants should not limit their attempts at collection to only the payment bond.
It’s hard to get a payment bond from the prime contractor when a project goes wrong. The project owner should be able to provide a copy of the bond. Otherwise, contact your bonding agent for assistance.
Step 4: Gather Documentation
Gather all necessary documents to support your claim. This includes invoices, contracts, delivery receipts, and any other relevant records. These documents should show the work that was completed or materials that were provided. Make sure your documentation is complete and organized.
Step 5: Notify the Surety
Before filing a formal claim, you must inform the surety in writing that you intend to make a claim. This is typically a required step in the claims process. It is important to provide this notification to the surety before proceeding with your claim.
This written notice serves as a formal communication of your intention to seek compensation. This notification should include details of the claim, such as the amount owed and the basis for the claim. Send the notification via certified mail or email to ensure it is received.
Step 6: File the Claim
Once you have notified the surety, you can proceed to file the formal claim. Prepare a written claim that includes all relevant details, such as the amount owed, the parties involved, and supporting documentation. Submit the claim to the surety according to the instructions provided in the bond.
Step 7: Follow Up
After filing the claim, follow up with the surety to ensure that your claim is being processed. Be prepared to provide additional information or documentation if requested by the surety.
Surety carriers have a dual obligation to the principal (their client) and claimants. Sureties try to investigate and respond to claims promptly to avoid being accused of acting dishonestly. But they must also be cautious and deliberate in handling claims due to this dual responsibility.
Step 8: Seek Legal Advice if Necessary
If the insurance company denies your claim or if you face any legal issues during the process, you should consider seeking legal advice. An attorney experienced in construction law can help you understand your rights and options.
Conclusion:
Filing a bond claim can be complex, but with preparation and attention to detail, you can improve your chances of success. To protect your rights and receive payment for your work on a construction project, you should first learn the basics. Next, gather all necessary documents. Finally, make sure to follow the correct procedure.
Want to learn more? Feel free to call Tom at 303-520-0249.
