Category Archives: Surety Law

A Few Simple Words That Make a World of Difference for Lower-Tier Miller Act Claimants

If you’re a lower-tier subcontractor or supplier on a public construction project, it might be tempting to calendar your notice-of-claim deadline 90 days (in the case of federal Miller Act projects) or 120 days (in the case of North Carolina “Little Miller Act” projects) from your last furnishing of labor and materials, regardless the nature of that last furnishing.

Resist that temptation.

It overlooks a few simple but critical words recited in the federal Miller Act, as well as similar language contained in North Carolina’s Little Miller Act.

Check out the highlighted words in this excerpt from the federal Miller Act (40 U.S.C. § 3133(b)(2)) (you can click the image for a larger view):

MillerActNoticeExcerpt3

And now take a gander at this excerpt from North Carolina’s “Little Miller Act” (N.C.G.S. § 44A-27(b)) (you can click the image for a larger view):

LittleMillerActNoticeExcerpt2

Both statutes say essentially the same thing: not only must notice of claim under the payment bond be given from 90 days (federal projects) or 120 days (North Carolina public projects) from last furnishing of labor and/or materials; it must be given from the last furnishing of labor and/or materials for which payment is sought.

That distinction can make a world of difference.  Here’s an example of how:

Monday MemoImagine you’re a second-tier provider & installer of security cameras on a wildlife refuge visitor center project owned by the U.S. Fish & Wildlife Service.  Your sub-subcontract is with the project’s first-tier security subcontractor, placing you firmly on the second tier, and within the federal Miller Act’s notice-of-claim requirements.  You last performed installation work on April 30, 2014, and later that day you submitted your final invoice, seeking payment in-full.  As of July 31, 2014, however, you hadn’t been paid the balance of your sub-subcontract; nor had you furnished notice of claim under the prime contractor’s payment bond.  You then spent a week in August training employees on the system’s operation (part of your base scope) and switching out a few cables (arguably extra work, but you neither provided notice of claim nor sought a change order timely, as required by your sub-subcontract).

It’s now September 29, 2014.  You still haven’t been paid.  Worse still, the first-tier subcontractor filed for bankruptcy protection last Friday.  You decide it’s time to put the prime contractor and its surety on notice of your payment bond claim, citing your last day on-site in August (which was obviously less than 90 days ago) as your last furnishing date.

That might not do the trick.  Why?  Because you didn’t bill for your August work.  In fact, your documentation shows that you billed for the entire remaining balance of your subcontract at the end of April.  Sure, the training work you performed in August was pursuant to your contractual obligations, so you have that going for you.  But would a trial court judge conclude that was work for which payment was sought, when final payment was sought back in April?  Your final invoice could be a major obstacle.

The good news is courts tend to afford public payment bond statutes a liberal construction.  The bad news is that they also tend to construe statutory notice and suit deadlines strictly.  As an example, check out how Judge Boyle trimmed the second-tier subcontractor’s Miller Act claim in AMEC Environment & Infrastructure, Inc. v. Structural Associates upon finding that the claim was asserted well after the claimant’s base scope of work had been completed.

The takeaway?  When you’re a remote sub or supplier on a government project, and therefore subject to the notice-of-claim requirements of the Miller Act or Little Miller Act, be mindful in establishing your date of last furnishing.  Don’t assume commissioning, training, punch list work, providing replacement parts or similar activities represent last performance, particularly if you have already submitted a “final” bill prior to such performance.  Once you submit an invoice for final payment, it may be difficult to prove that any subsequent activity represents performance “for which payment is sought.”

Generally speaking, the most conservative approach is to set your claim notice deadline based on the date you last performed labor and/or supplied material for which you actually sought payment, and avoid reliance on subsequent commissioning, training or similar activities (unless, of course, you’re planning to hold off on your “final” billing until these activities are actually completed).  Better still, consult with an experienced construction attorney to map out an appropriate strategy for ensuring your payment rights are secured timely.

 

6 Comments

Filed under Federal case law, Payment Bonds

A Trap for 2nd-Tier Miller Act Claimants to Avoid

Wednesday WisdomMost second-tier Miller Act subs and suppliers understand that in order to recover under a prime contractor’s Miller Act payment bond, written notice of the claim must be made to the contractor “within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made.”  40 U.S.C.A. § 3133(b)(2).  With that 90-day rule in mind, consider the following hypothetical:

You’re a second-tier supplier who last furnished materials to a first-tier subcontractor on a Fort Bragg project on December 13, 2013.  Today is the 89th day since your last furnishing, and you still haven’t been paid.  Realizing your claim notice deadline is fast approaching, you send your claim to the prime contractor by certified mail, return receipt requested this morning.  The prime will receive the notice and sign the green card on March 14, the 91st day after your last furnishing.  Was your notice of claim timely?

Continue reading

3 Comments

Filed under Federal case law, Federal law, policy & news, Payment Bonds, Subcontractors, Surety Law

4th Circuit Stages “The Collateral Battle” Between A Contract Surety & Its Principal’s Trustee in Bankruptcy

stage-233086_640Prelude:

Friends, underwriters, bond claim managers: lend me your eyes, and behold the saga of a surety that accepted collateral security from a financially unstable principal as an inducement for the issuance of new Miller Act performance & payment bonds.  The drama unfolds when the principal files for bankruptcy protection within 90 days of the collateral transfer and the bankruptcy trustee — that most formidable of foes! — seeks to avoid the transfer as preferential.  Fear not, dear readers!  Our hero fights gallantly in In re ESA Environmental Specialists, Inc., and is richly rewarded in this Fourth Circuit Court of Appeals production.

Continue reading

Leave a comment

Filed under Federal case law, Surety Law

Wednesday Word to the Wise: Verify Your Performance & Payment Bonds

Yesterday my Twitter feed delivered a pair of tweets about a rash of fraudulent contract surety bonds in Tennessee:

The owner/obligee got “lucky” in the case of the Regency Hotel demolition project at the Memphis International Airport, in that it discovered the fraud before contract award; that at least provided an opportunity to rebid the contract and award it to a properly bonded prime contract.  Goes without saying that the discovery of a forged or otherwise fraudulent bond during contract performance can be a much messier proposition.

What can owners/obligees do to protect themselves?  Verify your bonds.  How?  I suggest utilizing the resources furnished by the Surety & Fidelity Association of America (@SuretyFidelity) on its “Verify Your Bond” webpage. There you will find information needed to locate a particular bonding company and inquire about the authenticity of a specific bond.  You’ll also find a current list of surety companies participating in the Association’s Bond Authentication Program.

Stay vigilant, owners/obligees.

2 Comments

Filed under Payment Bonds, Performance Bonds, Surety Law

Top 10 Things to Know About North Carolina’s New Design-Build/Public-Private Partnership Law

This past summer, the N.C. General Assembly passed and Governor McCrory signed into law groundbreaking legislation authorizing the use of design-build, design-build bridging and public-private partnerships in the delivery and financing of public construction projects in the state.  The legislation is sure to alter North Carolina’s public procurement landscape drastically and influence the complexion of the state’s construction industry, particularly at the design and prime contractor levels.

DBP3Last Wednesday, October 23, I attended an excellent panel discussion covering key aspects of House Bill 857 (“HB 857″) sponsored by Carolinas AGC Foundation, AIA North Carolina (@AIA_NC), the Professional Engineers of NC (@ProfEngNC), United Minority Contractors of North Carolina and the American Council of Engineering Companies of North Carolina.  Based on that discussion and my own review and analysis of the legislation, here are my top ten observations:

Continue reading

3 Comments

Filed under Feature story, Local law, policy & news, Payment Bonds, Project Delivery Systems, Public Bidding, State law, policy & news

Construction Tweets of the Week

Alright, faithful readers, it’s time to launch a new feature here at N.C. Construction Law, Policy & News, a little something I’m christening the “Construction Tweets of the Week.”

The construction industry at all levels — local, state and national — enjoys an increasingly vibrant presence on Twitter.  I aim to showcase some of the voices that left an impression on me in the preceding week, as well as to facilitate ongoing discussion, whether in the Comments section of this blog and/or in the Twitterverse beyond.

You’ll note the tweets embedded here are fully interactive, with hotlinks to each Tweep’s profile, linked content and “Follow” button.  The reply, retweet and “favorite” functions are also fully operational.  Click early, click often, and become a part of the Construction Twitterati.

Without further ado, here are the Construction Tweets of the Week for the week ending Saturday, October 5, 2013:

1.  Dave Simpson of CarolinasAGC blasted out this tweet about six not-to-be-missed, CAGC-sponsored seminars concerning the North Carolina Legislature’s recent adoption of the design-build and public-private partnership (“P3″) project delivery systems for public projects in North Carolina:

Continue reading

2 Comments

Filed under Mediation, Project Delivery Systems, Surety Law

Who Benefits from Subcontractor Default Insurance? Not Project Owners.

The good folks at Bricker & Eckler, an Ohio law firm, recently blogged about a New York appellate decision concering subcontract default insurance (“SDI”), often referred to as “SubGuard” based on a Zurich SDI product of the same name.  The case involves a private owner who alleged it was misled by its construction manager (presumably at-risk) into believing that the SDI policy the CM had procured from the project’s largest subcontractor provided coverage to the owner in the event of that sub’s default.  Turns out the policy only named the CM, but not the owner, as an insured, and when the owner discovered it had no coverage after the sub’s default, it sued the CM for fraud, among other claims.

Continue reading

6 Comments

Filed under Construction Risk Management, Performance Bonds, Subcontractors

Seeing the Forest AND the Trees: Handling Contract Surety Claims with an Eye on the Big Picture

A Grim Tale

Image by Larisa Koshkina / PublicDomainPictures.net

Image by Larisa Koshkina / PublicDomainPictures.net

Once upon a time, Best General Contracting, Inc. hired Able Electric Services Co. to perform the $900,000 electrical scope of work on a library project for a local college.  Having not worked with Able before, and in light of the value of the electrical scope, Best required Able to obtain subcontractor performance & payment bonds for Best’s benefit, agreeing, of course, to reimburse Able for the $13,500 bond premium.  As fate would have it, the library project proved one too many for the not-so-able Able, who ran into cash flow problems, sought bankruptcy protection and abandoned the project.  Best immediately fired off a notice of default letter to Superior Surety and hoped that the claims handling process would match previous, positive experiences with subcontractor sureties and culminate in a quick, fairy-tale resolution to this project setback.

To Best’s surprise, it would not.   Continue reading

2 Comments

Filed under Claims Handling, Performance Bonds, Surety Law

The Surety’s Salvage Efforts: Equitable Subrogation v. Contractual Assignment Rights

It was an honor and pleasure to speak at last week’s surety and fidelity claims conference in Philadelphia hosted by the American Conference Institute.  Mark Oertel, a surety attorney from Los Angeles, and I closed out the conference on Thursday, October 18 with a presentation entitled “The Interplay Between Equitable Subrogation and the General Agreement of Indemnity’s Assignment Clause.”

Our remarks focused on two of the tools sureties use to minimize loss after satisfying claims made under payment and performance bonds.  One of those tools, equitable subrogation, allows the surety to step into the shoes and assert the rights of those entities to whom or on whose behalf the surety has performed or made payment.  That means after it performs its bond obligations, a surety becomes “subrogated” to the owner’s right to apply contract funds to completion costs, to the bond principal’s right to recover against poor-performing and/or late-performing subcontractors, and to the subs’ and suppliers’ rights to payment.  Since the courts have held that the surety’s equitable rights trump the rights of bankruptcy trustees, lenders and taxing authorities, equitable subrogation is undoubtedly the most powerful weapon in the surety’s salvage arsenal.

That’s MOST powerful.  Not ALL powerful.

Continue reading

Leave a comment

Filed under Equitable Subrogation, Indemnity Rights, Payment Bonds, Performance Bonds, Surety Law

Barnstorming Tour on Revisions to North Carolina’s Lien and Bond Laws Kicks Off Tomorrow In Durham

I’m excited to be one of five North Carolina lawyers participating in a series of seminars sponsored by CarolinasAGC aimed at helping the construction industry understand the significant lien and bond revisions passed by the General Assembly and signed into law by Governor Perdue earlier this summer.

Over the coming weeks, CAGC is sponsoring five such seminars in Durham, Wilmington, Greensboro, Charlotte and Asheville.  CAGC’s website describes each seminar as follows:

This two hour seminar will cover the major, recently enacted revisions to North Carolina’s lien and public bond law statutes.  House Bill 1052 and Senate Bill 42 were signed into law this July, and will take effect respectively in January and April 2013.  The new laws substantially modify the steps that all parties will have to take to protect their interests — regardless of whether they are an owner, buyer, contractor or sub/supplier. In particular, the new laws impose significant new notice requirements for both public and private work.  This seminar will be taught by attorneys that were intimately involved in passing the legislation and will cover in detail what the changes are and what you’ll need to do to protect your interests starting in 2013.  Attendees will receive a written summary of the lien laws as amended and a copy of the Power Point
presentation presented and have ample opportunity to ask questions from the presenting attorneys.

Continue reading

Leave a comment

Filed under Events, Lien Law, Payment Bonds, State law, policy & news, Surety Law