Today’s blog is written by guest author, Todd Bryant who is the president and founder of Bryant Surety Bonds, and he helps contractors get bonded and start their business.
There are various reasons for construction bond claims to arise. Many of these are due to contractors not being careful enough with their finances, the management of their projects or something else. Other claims are due to reasons beyond a contractor’s control – such as major-scale natural or economic events that disrupt or destroy the progress on a certain project.
Yet, of the above, a predominant amount of construction bond claims are due to contractor inattention. Luckily, there are also many ways to keep problems at bay and avoid claims. With that said, here are some of the most frequent types of construction bond claims and various ways that contractors can avoid these.
How Do Construction Bond Claims Occur?
Surety bond claims occur whenever the bond principal, in this case a contractor, does not comply with the conditions set out in the surety bond agreement.
Construction surety bonds are put in place to protect project owners and subcontractors, the bond obligees, from various types of contractor default. As soon as a contractor does not comply with the contract made with the project owner or with the subcontractors, these parties (under a number of conditions, of course) can file a claim against the respective surety bond and ask the surety to step in and resolve the issues.
If and when a contractor is found to be in breach of their agreement the surety has the obligation, under the surety bond agreement, to step in and mitigate the situation. The surety does so either by taking over the project, in cases of performance bond claims, or compensate subcontractors, in cases of payment bond claims.
But what are the most common reasons for construction bond claims that sureties have to deal with?
The Top Reasons for Contractor Default
All construction bond claims are due to some kind of default on the side of a contractor. The reasons for contractor default can broadly be summed up as follows:
- Contractor overexpansion or overextension
- Poor leadership and management of projects and employees
- Financial and accounting issues
- Performance issues
Contractor overexpansion has to do with the tendency of some contractors to take on too much, too fast. Overexpansion or overextension is related to the inability of a contractor and their staff to keep track of projects commitments. Spreading your resources and personnel too thin means that all your projects will suffer to one degree or another.
And if you ask your workers to work faster so that you may tick off some of your commitments, there’s a very real possibility that there will be faults in their work. So, instead of obsessing about volume or trying to forcefully grow the business in a very short amount of time, contractors should try to remain realistic and keep a steady pace.
There are few occasions when contractors can pull off a rapid expansion in a perfect manner and while risk is inherent to the construction business, it is very important to remain realistic about what is and what is not possible!
Poor Leadership and Management:
The ability to prioritize, make firm decisions and keep an overview of the whole business is part of the role of leaders and managers. Hence, the inability of leaders and managers to be realistic and level headed, rather than overly optimistic, can create significant difficulties.
This includes issues such as: inadequate supervision of projects and lack of close management, lack of good training of staff on operations and company policy, lack of a good business plan and contingency plan and no clear organizational goals or objectives. In other words, though these issues are mostly internal to the organization, they have direct effects on its external performance.
In a recent case, contractor CH2M was defaulted by the Central Texas Regional Mobility Authority on the project to expand the North MoPac Boulevard in Austin, TX. The contractor was defaulted by the project owner for being 3 months late with its completion, due to what the owner perceives as inability to properly manage both human and financial resources. As a result, the project owner is expected to file a claim against the bond, unless the contractor “cures” the default by devoting more time and resources to the project.
To avoid these pitfalls and the bond claims that arise out of them, leadership and management have to make sure to provide high quality training to staff and keep the organizational strategy and long-term goals in mind. Developing proper business acumen, if lacking, is another important aspect to strengthening leadership and keeping the company going.
Financial and Accounting Issues:
Financial problems are probably on the top of the list when it comes to reasons for construction bond claims. These issues can cause both performance bond claims as well as payment bond claims.
Such claims may arise, for example, when a contractor goes bankrupt and is therefore unable to continue working on a project, and purchase new equipment or materials. The reasons behind bankruptcy are usually a complex combination of poor accounting and cost estimates, bad project management systems, lack of proper insurance, tight cash flow and a decrease in revenues and margins.
It is therefore vitally important that contractors work with a professional construction CPA. Not only does a construction CPA know what is required to keep a construction business financially stable but having a construction CPA is also very important when you apply to obtain your surety bond.
Across the board, sureties are more willing to write bonds to those contractors who have a professional taking care of their finances than to those who try to do it themselves or have a non-construction CPA at work.
All of the above reasons for claims lead to performance issues in the end. From cash flow problems to overextending, being behind schedule and ultimately abandoning a job, all of this leads to poor performance and a claim on one’s bond.
Further reasons that can cause performance-related claims are lack of experience in a certain field or type of construction, lack of skilled personnel and working with unreliable subcontractors.
Keeping all of the above in check is the key to performing well and avoiding a claim on one’s performance bond.
Work With Your Surety to Avoid Claims:
Many, if not all, of the above issues can be avoided if you work with a good surety. Your choice of surety can often mean the difference between a claim and the avoidance of a claim.
Furthermore, even if you pick a great surety, you may still fail to make good use of them, if you do not keep in touch whenever you experience difficulties and only call them once a claim has been filed against your bond. Communicating often, openly and transparently to your surety is one of the best ways you can avoid potential claims.
Are there any other reasons for construction bond claims to occur which aren’t listed here? And what is your experience with avoiding or managing claims? Leave us a comment, we value your input and would like to hear from you!
The Cobb Law Group is pleased to announce the publication of its latest handbook–the Georgia Material Supplier Collection Handbook! This long-overdue collection guide will help credit managers, business owners, and material owners collect the money they are owed on construction projects in Georgia by providing essential tips for filing and enforcing mechanics and materialman’s liens, payment bond claims and other issues related to construction commercial collections. It is particularly helpful for construction material suppliers who deliver building materials to project sites anywhere in Georgia.
To download your free copy of the Georgia Material Supplier’s Collection Handbook, please click here > >
What Does the Free Guide to Georgia Materialmen Law Cover?
Although its impossible to cover every aspect of Georgia law in a single volume, this free handbook provides useful summaries of Georgia law and practical tips for credit managers and business owners. The topics included in this guide for collections includes the following:
- Summary of Important Deadlines for Notices, Affidavits, Lien and Payment Bond Claims;
- Checklists for Credit Managers to Consider before they Open Accounts for New Customers;
- Georgia’s Statutory Notice Scheme (Does it apply to you?);
- Georgia’s Lien Waivers (including unconditional waivers vs. conditional waivers);
- Georgia’s Prompt Payment Act;
- Using Preliminary Liens in Georgia to Help You Collect;
- A Summary of Georgia’s Mechanics and Materialmen’s lien laws;
- The Basics of Payment Bond Claims (Claim Against the Surety);
- How to Handle your case in Magistrate Court (Georgia’s small claims court); and
- Post-Judgment Collection Tips
Who Needs a Copy of their Free Guide to Georgia Construction Collection Law?
Anyone who has supplied materials or preformed services or labor on a construction site in Georgia needs to read this great guide. Using this resource as a guild, it can help you prevent collection issues before they arise, and it can help you enforce your rights to file a construction lien or make a payment bond claim to recover the money they are owed including the following:
- Credit Managers;
- Credit Analysts;
- Business Owners;
- CFOs and Comptrollers;
- Manufacturers of Building Materials;
- Account Receivable professionals;
- Building Supply Companies such as electrical supply, roofing materials, truss and framing supply companies, irrigation and plumbing supply companies, and many, many others;
- Potential Lien Claimants;
- Potential Payment Bond Claimants;
- Anyone who is owed money on a Georgia construction project; and
- many others
What is Included in this Guide to Georgia Construction Lien Law?
We include a long list of potential deadlines which can mean the difference between getting paid for your services and not including the deadlines for the following:
- Filing of a Notice of Commencement by a General Contractor
- Notices to Owners and Notices to Contractors
- Affidavits of Nonpayment
- Georgia Preliminary Construction Liens
- Mechanics and Materialmen’s Liens
- Payment Bond Claims (Miller Act Claims)
- Lawsuit Filing Deadlines to Enforce Lien Rights
- Notice of Contest of Lien
- Bond Claim Lawsuits
- Notice of Action of Filing Suit
In addition, this free guide to commercial collections for the construction industry includes the following, practical checklist to help you improve your rate of recovery almost instantly:
- Items to Add to you Credit Application
- Useful (time-saving and cost-saving) Contract Terms
- Personal Guarantees
- Georgia’s Statutory Notice Scheme (Pre-construction Notices)
- Internal Accounting Procedure Summary
- Suppliers Obligations
- Practical Tips for Credit Managers
- Options if Lien Waiver is Signed but Payment is Not Received
- Checklist for Filing Preliminary Liens
- Important Considerations for Georgia’s Construction Liens
- Statutory Requirements for Mechanics Liens
- Payment Bonds Covering Public Works
- Payment Bonds Covering Private Works
- Litigation Tips
- Post-Judgment Collection Resources
- Construction Legal Services
Download Your Free Copy Today!
To get your own copy of this important resource on Georgia construction law, please click here > >
Order Your Free Printed Copy of this Handbook for Georgia Materialmen:
In addition to the free download, we are also giving away printed versions of the Georgia Material Supplier Collection Handbook (while supplies last). To request a copy of this great summary of Georgia’s lien and payment bond law, please send an email request to us at either firstname.lastname@example.org or through our contact us page. Please be sure to include the number of copies you want and a valid mailing address.
If you find this Guide to Georgia’s Mechanics and Materialmen’s Lien useful, then you may also want to schedule a specialized training session for your staff or professional organization. Our construction law attorneys have helped to educate credit departments and business owners all about their rights and obligations under Georgia’s lien laws. We have helped to train the credit departments of some of the largest building material suppliers in the country, and, when we train your employees, we will customize our presentation to your specific industry using your common credit scenarios. For more information on our training and lecturing opportunities, please click here > >
In the big, legal field of “commercial collections” there is seldom good news. Even rarer, there is seldom a big benefit to help you get paid. Commercial collections for the construction industry, however, is different–there is some good news and there are some BIG, effective strategies to help you get paid . . . .
Introducing the Materialmen’s Lien (sometimes referred to as construction, subcontractor, contractor or mechanics lien) and/or the Payment Bond Claim!
What are the benefits to filing a Materialmen’s Lien in Georgia and/or making a claim against a Payment Bond? Although liens and payment bonds are completely separate animals with their own advantages and disadvantages, they share a BIG ADVANTAGE: for the subcontractor or the material supplier it is like getting a free GUARANTOR to promise to pay you the money you are owed after the money is owed! This is unthinkable in almost any other collection area. Look at this example:
OWNER hires ABC CONTRACTOR to build something; ABC CONTRACTOR, in turn, hires XYZ SUBCONTRACTOR to perform all of the electrical work on the project. Assuming that XYZ SUBCONTRACTOR fully performed under its contract, but ABC CONTRACTOR breaches its contract with XYZ SUBCONTRACTOR by failing to pay XYZ SUBCONTRACTOR, then, pursuant to standard contract theory (i.e., commercial collections), SYZ SUBCONTRACTOR may pursue collection of the debt from ABC CONTRACTOR (and only from ABC CONTRACTOR). But in the niche area of construction collection, in addition to seeking payment from the contractor, XYZ SUBCONTRACTOR may be able to file either a lien or make a payment bond claim in which case, XYZ SUBCONTRACTOR can look to either OWNER (in the case of a lien) and/or SURETY (in the case of a payment bond). Imagine someone owes you some money, and then after the debt becomes due, you find that a third-party may also be responsible for paying you.
Practical Tip: If you are a supplier or subcontractor who wants to improve your recovery of accounts receivables (AR), then, before you begin work or begin providing materials to the jobsite, try to obtain a personal guarantee from your customer’s owner. That way, if you are not paid, you may be able to seek recovery from (i) your customer such as ABC CONTRACTOR, (ii) your customer’s individual owner, (iii) by using a mechanics liens, the OWNER, and (iv) if there is a payment bond covering the project, then the SURETY. Four potential debtors/guarantors will significantly increase your likelihood of recovery.
Is It as Simple as It Seems? Unfortunately, nothing is entirely simple, but filing a claim of lien in Georgia and making payment bond claims are typically not too difficult nor too expensive. Of course, the lien claimant or the bond claimant must meet several obligations and deadlines in order to pursue their lien rights but most “good” subcontractors and suppliers do this automatically, and less “professional” subcontractors and suppliers, admittedly, seem to have more difficulties. We hope to address some of these issues in future blog posts as well.
What is the Difference Between a Claim of Lien and a Payment Bond Claim? On all privately-owned construction projects in Georgia, those who supply labor, services or materials have basic rights if they do not receive timely payment. On all public works projects (government-owned construction projects) of a certain size in Georgia, those who supply labor, services or materials have rights against the payment bonds. In addition, some private projects are also covered by Payment Bonds in which case, an unpaid subcontractor or supplier may file a construction lien and, concurrently, file a claim against the payment bond (which really increases the ability to recover your AR).
How Do I File a Construction Lien in Georgia? As mentioned briefly above, lien and bond claimants must meet various requirements in order to file a lien. Thus, it is vital to select a Georgia construction lawyer to help you analyze your specific matter and advise you on your collection options. It is important to know that lien and bond claims must be made within 90 days of the last day in which you worked or supplied materials on the project. (It could be a shorter period if you signed a statutorily authorized lien waiver).
It’s Up to You if you Want to Collect Your Money: If you are looking for a construction lawyer to help you file a materialmen’s lien (or make a claim against a payment bond) anywhere within the State of Georgia, please click here to contact us today.
After two years of hard work, we are pleased to announce that Construction Subcontracting: A Comprehensive Practical and Legal Guide has been published by the American Bar Association (“ABA”), and Mark Cobb is pleased to have been one of the contributors to this amazing new resource (and the only participating attorney from Georgia!)
Although this publication could be useful to many people including construction and credit professionals, it is a book written by subcontractor law attorneys primarily for other attorneys who need to know more about the subject. In some ways, it is intended to begin codifying and identifying those issues unique to specialty trade subcontractors and material suppliers as the new concept of SUBCONTRACTOR LAW becomes more and more recognized by legal professionals, educators, and construction industry professionals.
Construction Subcontracting: A Comprehensive Practical and Legal Guide was the brain-child of Division 9 of the ABA’s Forum on the Construction Industry. Founded in 1976, the Forum has grown to become the largest organization of construction lawyers in the world. It fulfills its mission of “Building the Best Construction Lawyers” and Forum members represent all segments of the industry, including owners, design professionals, contractors, construction managers, integrated design-builders, subcontractors, suppliers, insurers, and sureties. Division 9 is a sub-group of Forum member attorneys who represent and focus on the unique needs of specialty trade contractors and suppliers. The attorneys who are active in Division 9 recognized the lack of a national publication and guide in this burgeoning area of practice. This book remedies this in fulfilling its mission to be “comprehensive”, “practical” and “legal”. The three editors, each of whom are at the top of their profession, chose to divided the text into the following six parts:
- The Subcontract Document
- Subcontract Performance
- Insurance, Bonding, and Licensure
- Special Project Issues
- Other Contracting Arrangements
As you can imagine with a book of this caliber, each section is filled with multiple chapters dedicated to explaining the fundamentals of Subcontractor Law including contractual rights and obligations, Federal and state statutory provisions impacting subcontractors as well as common law issues and remedies affecting construction professionals.
Part One of the book discusses “The Subcontract Document” which includes an examination into subcontract terms commonly used in standard contract templates (such as AIA contracts, ConsensusDocs and others frequently used construction forms) as well as their advantages and disadvantages; this section tears apart the common subcontract terms including flow-down provisions, change orders, insurance, warranties, terminations, and lien waivers. In addition to these (and other) express contract provisions, the section also discusses implied subcontract terms such as covenant of good faith and fair dealing. This important section also addresses the formation of subcontracts from the bid process through final negotiations and includes topics such as Bid Shopping, Bid Padding, Promissory Estoppel Doctrine, Negotiation Strategies and Preparing Fall-Back Provisions.
Part Two discusses “Subcontract Performance” which looks at such diverse subjects as construction scheduling, excusable and non-excusable delays, acceleration and damages as well as tips regarding calculation of damages. This section of the book also includes chapters on payment issues, mechanics and construction liens, change orders and extras as well as issues related to differing site claims, asserting and proving the claims of subcontractors, as well as contract terminations. This lengthy section of the book concludes with the topics of Warranties in Construction Subcontracts (expressed and implied), an analysis of the Spearin Doctrine (i.e., the owner’s implied warranty), Indemnity and Federal Prevailing Wage Law and Project Labor Agreements including the Davis-Bacon Act, Contract Work Hours and Safety Standards Act, and The Copeland Anti-Kickback Act. (Stay tuned for a future blog post in which Mark will provide a detailed summary regarding his contributions to the chapter on Subcontractor payments.)
Part Three addresses the vital topic of “Insurance, Bonding, and Licensure” and includes a detailed analysis of the different types of insurance generally required of subcontractors including General Liability Insurance, Professional Liability Insurance, Builders Risk Insurance, Workers’ Compensation Insurance, Automobile Coverage as well as related issues such as waivers, endorsements and subrogation. This section also provides chapters on surety bond issues, Miller Act and “Little Miller Act”, payment bonds, performance bonds, and mechanics lien discharge bonds. Regarding subcontractor licensure, the book discusses the need for a licenses, the various governing boards and non-compliance with licensure requirements as well as the payment rights for unlicensed subcontractors.
Part Four attacks the difficult topic of “Disputes” including an analysis of typical subcontract provisions such as the Duty to Continue Work Pending a Dispute, Direct Discussion and Escalation; this part also looks at litigation pass-through claims discussing such vital topics as case management, discovery and joint defense agreements; in addition, it looks at alternate dispute resolution methods including mediation, arbitration and dispute avoidance.
Part Five’s “Special Project Issues” takes a look into several interesting and often-overlooked subjects including an analysis of Federal, State and Local Contracting (including discussion on competitive bidding, preference and incentive programs and bid protects); Alternative Project Delivery (such as design-build, Tri-Party Agreements, and Public-Private Partnerships); Green Building issues (including the LEEDS rating systems as well as others rating systems such as Earth Advantage, The Living Building Challenge, DGNB and others as well as the additional project risks associated with green building techniques); finally, this section addresses Globalization and International Projects whether led by foreign contractors working on projects in the United States or US contractors working abroad.
Section Six, the final section, addresses the cutting-edge topic of “Other Contracting Arrangements”, and it includes discussion on “newer” arrangements such as Subconsulting Design Contracts, Design Issues, Supply Contracts and Equipment Leases (including equipment rentals on construction projects), Teaming Arrangements such as joint-venture agreements along with their management, advantages and disadvantages including their role in the federal procurement context.
As you can see, this comprehensive publication is a long-overdue resource for those of us practicing in the field of subcontractor law. It is an amazing “first-step” as this new legal field is accepted and defined by the legal profession, legal educators and construction professionals. Mark Cobb was honoured and thrilled to have been a part of this seminal text in his field, and he greatly enjoyed the ability to work with some of the leading subcontractor law practitioners in the country.
If you are interested in more information regarding this subject or if you would like to obtain your own copy of Construction Subcontracting: A Comprehensive Practical and Legal Guide, then please contact us today. If you would like to purchase your own copy of this useful tool directly from the publisher, please click here > >
Construction projects are all about deadlines–30 days, 60 days, 90 days…..You’re always calculating when you will start or complete your work during a project.
And, have you ever finished a project and when payment is slow, you want to know the deadline before your ability to file a payment bond or materialmen’s lien expires? Affidavits of Nonpayment, for example, must be filed within 60 days from the date of your Georgia lien waiver, but your construction lien must be filed within 90 days of the last day you were on the job.
Well, there’s no need to keep counting out on your fingers or searching for the calendar you keep misplacing–Cobb Law Group has created a calendar wheel for this very thing, and as a small thank you, we will drop one in the mail to you for FREE!! It’s so easy, just
1. “Like” Cobb Law Group on Facebook;
2. Leave a comment on the blog with a topic you would like for us to write about in a future blog article or tell us how you found us; and
3. E-mail us your mailing address email@example.com
No more scrambling around or being lazy about those deadlines–we use ours all the time!
Giveaway ends when supplies run-out!
by Mark A. Cobb
A Georgia Court of Appeals recently published its opinion in Board of Regents of the University system of Georgia v. Brooks, and the holding impacts businesses providing janitorial and general maintenance on Georgia’s public buildings.
The Background Facts: The Plaintiffs’ employer entered into a maintenance and service contract with Georgia Southern University (“GSU”) which included the cleaning of rooms and the refinishing of floors. In order to secure the contract, the employer submitted a payment bond to GSU, and the employees began working on the campus. The employer, however, did not pay its employees; thus, the employees made a claim against the payment bond for payment of their past due wages. Upon further investigation, it was determined that the employer had forged the payment bond. Consequently, the employees became the plaintiffs in a lawsuit against the Board of Regents alleging that GSU owed a duty to the Plaintiffs to “obtain, confirm and [e]nsure the existence of a valid payment bond under O.C.G.A. §§ 13-10-62 and 13-20-63″ (which is often called “The Little Miller Act”).
GSU’s Argument: The Board of Regents denied all liability. Among its arguments, the Defendant argued that the suit was barred by the doctrine of sovereign immunity. More specifically, the Defendant argued that the claim was a tort claim based upon negligence, and, as such, the case was governed by the Georgia Tort Claims Act (and not by the payment bond requirements of the construction of public works projects of Title 13). Consequently, the Defendant argued that GSU was entitled to sovereign immunity from all tort suits, including this one, and that the doctrine of sovereign immunity extends to employees of the State of Georgia while acting within the scope of their official duties or employment.
The Court’s Ruling: Although the Plaintiffs insisted that O.C.G.A. §§ 13-10-62 and 13-10-63 required a payment bond for the Plaintiffs’ protection, the Georgia Court of Appeals found that the Plaintiff’s failed to demonstrate that these code sections were applicable in this specific instance. Since the requirement for a payment bond was not proven, then, the court reasoned, the doctrine of sovereign immunity applied.
When Are Payment Bonds Required on Georgia Public Works Projects? According to O.C.G.A. § 13-10-60, Payment bonds are required for “public works construction contracts with an estimated contract amount greater than $100,000.00.” Although the phrase “public works construction contracts” is not defined in Chapter 10 of Title 13, the Court of Appeals noted that the same phrase is defined in the statutory scheme governing local government public works construction (which is substantially similar to the statutory scheme governing public works owned by the State of Georgia). According to O.C.G.A. § 36-91-2(12), the term “public works construction” means “the building, altering, repairing, improving, demolishing of any public structure or building . … Such term does not include the routine operation, repair, or maintenance of existing structures, buildings, or real property.”
What is the Lesson for Subcontractors Working on Public Projects? In this case, Plaintiffs did not submit the entire GSU contract into the record, and the complaint and portions of the GSU contract which were included in the record show only that the contract was for maintenance and other services, such as cleaning services. Consequently, the Plaintiffs failed to establish that their contract was for public works construction and, accordingly, a payment bond was not required by law. Therefore, prior to bringing a suit against a payment bond, it is vital to determine whether or not a payment bond was required for a specific contract.
Are there Other Important Lessons from this Case? Yes! Since the original payment bond submitted by the Plaintiffs’ employer was forged, the Plaintiffs also argued that GSU had a duty to confirm the validity of the payment bond. The court also held that Plaintiffs failed to demonstrate the state’s duty to verify the accuracy of the payment bond and reminded us that when the Board of Regents takes a proper-form bond, it is “not required to make any further inquiry or investigation into the propriety of the information presented on the face of the payment bond.” It is incumbant upon the subcontractor or supplier to confirm the validity of the payment bond on which they work or supply materials.
By: Mark A. Cobb
Making a payment bond claim (i.e., a claim against the surety bond) in Georgia may be difficult unless you realize that there are four different types of payment bonds and that each type of payment bond has its own requirements and its own statutes of limitations.
Payment Bonds Help You Get Paid on Georgia Projects: The construction industry is very unique and offers its material suppliers and subcontractors tremendous advantages to make sure that they receive payment for their services, labor and supplies. But, in order to avail yourself of these advantages, you must strictly comply with each of the requirements and deadlines necessary to enforce your claim.
The Advantage to Being a Georgia Subcontractor or Supplier: In typical business situations, two parties contact with each other and, in the event of a breach of the contract, the offended party can only seek restitution from the breaching party. As an example, let’s assume that ABC Construction, Inc. contracts with XYZ Roofing Corp. for the delivery of roofing tiles. If the roofing tiles are delivered, but they are not paid for, Georgia contract law clearly allows XYZ Roofing Corp. to seek payment from ABC Construction, Inc. And, in most business law situations (i.e., in non-construction claims), ABC Construction, Inc. would be XYZ Roofing Corp.’s sole avenue for recovery.
However, Georgia’s materialmen lien law and Federal and state payment bond statutes allow Georgia contractors and materialmen to also seek recovery from additional parties: In the case of a lien claim, XYZ Roofing Corp can also seek recovery from the owner of the construction project, and in the case of a payment bond claim, XYZ Roofing Corp. can also seek recovery from the surety or insurance company backing the payment bond.
Four Different Types of Payment Bonds in Georgia: The advantage of seeking payment from parties other than those with whom you have a direct contractual relationship come with obligations from the potential payment bond claimant. Because there are four significant types of payment bonds covering Georgia construction projects, each type of bond has its own distinct differences with differing requirements.
1. Federal Public Works Bonds Under the Miller Act: Most Federal projects in Georgia are required to provide payment bonds to protect suppliers and subcontractors. The Federal statute governing these bonds is commonly referred to as the Miller Act. Currently, the Federal Miller Act does not require a preliminary notice (e.g., an NTO or a Notice of Furnishing).
2. Georgia Public Works Bonds Under the Little Miller Act: Most construction projects owned by the State of Georgia require the general contractor to post a payment bond for the benefit of the project’s materialmen and subcontractors. The Georgia State Statute governing these bonds and their claims is commonly referred to as Georgia’s Little Miller Act. It is called this as many of the provisions in the Georgia Little Miller Act mirror the provisions of the Federal Miller Act. However, there are significant differences which can abridge a subcontractor or supplier’s rights. Unlike the Federal Miller Act, for example, Georgia’s Little Miller Act requires that those not in privity of contract with the prime contractor or the owner send a Notice to Owner and a Notice to Contractor within 30 days of the first day that the subcontractor or supplier begins working on the job.
3. Georgia Municipality Public Works Bonds: Although there are many similarities between them, local municipalities in Georgia are governed by a different set of statutes that the State of Georgia’s Little Miller Act. Nonetheless, most local government projects (e.g., school construction or renovation) are required to maintain a payment bond to protect the project’s contractors and material suppliers.
4. Private Project Payment Bonds: The three preceding bond statutes require payment bonds on governmental projects. Although not required by law, many private projects–particularly large projects–are also covered by bonds. In these situations, potential bond claimants must meet the individual requirements of each bond in order to qualify as a claimant. In these situations, it is vital to obtain a copy of the payment bond at the project’s beginning and then read and comply with each of its terms and deadlines.
The Payment Bond Terms May Expand Subcontractors Rights: Each of the first three categories of payment bonds in Georgia (Miller Act Bonds, Little Miller Act Bonds, and Municipal Construction Bonds) have minimum requirements established by their respective statutes. However, the payment bond is also a contract between the governmental entity undertaking the work and its insurer; thus, the contract between them may be more expansive than the minimum requirements of the law. It is possible, therefore, for a particular payment bond to grant more rights to a claimant, extend the deadlines, or include a class of potential bond claimants which might otherwise be excluded. Therefore, every contractor and every supplier should review the terms of every payment bond under which they are working.
In the future, we intend to write a series of blog posts highlighting more details of each of the different types of payment bonds in Georgia. In the meantime, if you are working on or providing materials to any Federal, state or municipal project in Georgia (or a private project with a payment bond) you need to consult with an experienced payment bond attorney who can help you understand your rights, protect and preserve your rights, and, if necessary, enforce your rights.
by: Mark Cobb
An Atlanta payment bond claim, a Marietta payment bond claim, a Coweta County payment bond claim, an Athens, Clarke County payment bond claim, a Fort Benning, Georgia payment bond claim, and a Savannah payment bond claim. This is my week so far!
Since the Cobb Law Group’s construction law practice has been so busy with filing and perfecting claims against payment bonds this week, we thought our readers might appreciate hearing some of our ideas on the payment (and nonpayment) trends that we are seeing!
So far this week, we have initiated six payment bond claims. Although the mechanics lien attorneys at the Cobb Law Group also typically file numerous mechanics and materialmen lien claims in Atlanta and throughout Georgia each week, so far, we haven’t filed any new Claims of Liens. We monitor our clients’ files very carefully, and since almost all of our clients are construction professionals (in particular, they are specialty subcontractors and material suppliers), we have the advantage of noticing trends affecting the industry before others. Also, since we have been focused on Georgia subcontractor law for over 20 years, we recognize the cyclical nature of the trends and can see the big-picture.
Unfortunately, the U.S. economy is not recovering as quickly as we need; our little feelers indicate certain geographic pockets experiencing slight increases in construction, but other areas continue to be stagnant. Although they are not as plentiful as we would like to see, there are government public works projects providing construction contracts to subcontractors and purchasing construction materials from suppliers. Without spending too much time on this (we’ll save it for another blog article), government projects are subject to difficult bidding procedures and, increasingly, bid preferences for local contractors which greatly limit the playing field for legitimate, regional contractors. Nonetheless, there are some government construction projects out there which are providing necessary work.
PAYMENT BOND DEADLINES:
Government projects are notoriously slow-paying which means that subcontractors and suppliers have to vigilantly monitor their (i) 60-day deadline from the date a Georgia lien or bond waiver was signed to file an Affidavit of Nonpayment if they haven’t received payment, and (ii) 90-day deadline from the last day they were on the job to make their claim against the surety backing the payment bond.
MILLER ACT AND BABY MILLER ACT:
Furthermore, federal construction projects are governed by the Miller Act; State of Georgia construction projects are governed by Georgia’s version of the Miller Act which is referred to as the Little Miller Act. It is essential that everyone understand that these two Acts–although parallel in many respects–differ substantially!
Because the government projects are slow-paying, our clients are asking us to timely file their claims against the projects’ payment bonds. As mentioned, above, our Georgia payment bond lawyers have initiated six new claims so far this week. All six of these claims were approaching the deadlines in which a valid claim could be made.
It is interesting to note, however, that of the six claims we have begun in the last day or so, we have settled (or almost resolved) four of them! Here’s the break-down:
- payment of two of the payment bond claims have been paid in full via joint-check;
- payment of two of the payment bond claims have been promised by the general contractor within the next 30 to 45 days; and
- two of the payment bond claims have not yet received a response (but we are hopeful they will get paid quickly!).
ENFORCE YOUR BOND RIGHTS TO GET PAID:
So, what exactly does this little study show? Slow-pay is not “no-pay”, but you will probably have to exercise your legal rights to make a claim against the payment bond in order to get paid; in four out of our six examples, 2 have been paid and 2 are promised to be paid. Thus, our clients have already released two payment bond claims, and two others have been suspended pending payment by the surety or the general contractor. That’s recovery of 2/3 of the cases in a matter of hours after bringing a payment bond construction lawyer on board. Prime contractors understand the government’s slow-pay mechanism; however, as the entity posting the bonds, it is the prime contractors’ credit rating which is affected by a subcontractor’s or materialmen’s claim; thus, it is in the best interest of the general contractor to pay the third-tier supplier or subcontractor rather than face increased premiums in the future.
We firmly believe that if our clients had not made their payment bond claims before the statute of limitation ran, they would not have received payment. Making these claims is a wonderful tool in the arsenal of Georgia subcontractors and suppliers to make sure that payment is made. If you need to discuss nonpayment issues on a public works project with our Georgia payment bond attorneys, please contact us today.
Since the school projects throughout Georgia are finishing up, we are noticing that some of our clients who furnished labor or materials on Georgia public school projects are calling us to say that they are not being paid. Fortunately for them, there is usually a payment bond covering the school project which helps guarantee that they will get paid. These payment bond statutes are generally found in the O.C.G.A. Section 36-91-90 et seq. and are commonly referred to as Georgia’s Miller Act or Georgia’s Little Miller Act (the Miller Act is the federal government’s version of a similar statute covering federal public works projects in Georgia as well as throughout the entire country.)
Many times, it appears as though our clients are promised payments and our clients feel confident that–if they are patient enough–payment will be forthcoming. Perhaps, for example, the whole project has been “slow pay” or the municipal authority in charge of the project is withholding final payment to the general contractor for some reason unrelated to our client.
Although we hope that our clients are correct and patience will result in payment, it is vital that they make a timely payment bond claim in order to “guarantee” payment. Some clients are concerned about the legal costs associated with making a payment bond claim and enforcing a payment bond claim in Georgia. There are multiple strategies which the Cobb Law Group regularly employs when working with public works collection matters.
And, if the project has been “slow pay” project and the client reasonably believes payment will eventually be made, then we advocate (i) making a timely payment bond claim (which is a relatively simple and cost-effective procedure), and (ii) then advising the surety that, although our client’s rights pursuant to the payment bond have been preserved, we request ample time to allow our client and the obligee opportunity to amicably resolve the matter.
Thus, a specialty subcontractor or supplier has (i) met its minimum obligations under the terms of the payment bond, (ii) has not incurred excessive legal fees, and (iii) has maintained the right to pursue its remedies under the payment bond if necessary.
Regardless, a claimant cannot let any deadline slip away; thus, it is important to review some of the essential deadlines on making timely claims on payment bonds on Georgia public works projects:
Deadline Number 1: If you were a third tier supplier or subcontractor working for any one other than the project’s general contractor or the municipal authority, then you may have had to send a Notice to Owner and a Notice to Contractor within the first 30 days that you began working or supplying to the project.
Deadline Number 2: If did not receive payment in full, then you must make a claim against a Georgia Public Works project within 90 days of the last day in which you were physically on the job or furnished materials to the jobsite.
Deadline Number 3: Generally speaking a payment bond claimant must bring an action against the bond (a civil lawsuit) within one year from the completion of the contract and the acceptance of the public building or public works by the proper public authorities.
If you have provided services, labor or materials on a Georgia public school project (or any federal, state or municipal project) and have not received payment in full, please contact us to discuss your rights under Georgia’s Little Miller Act (or any other construction law or business law matter you may have!)
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.
by: Cobb Law Group
It’s coming soon! August 15 is a big day for small construction contractors and subcontractors! According to the U.S. Small Business Administration’s Surety Bond Guarantee Program, smaller construction contractors will have improved access to bonds.
First, there is a new, streamlined application process which simplifies the existing SBG program paperwork for construction contracts of $250,000 or less. The new form combines two existing forms, the SBA Form 994 (Application for Surety Bond Guarantee Assistance) and the SBA Form 990 (Surety Bond Agreement), and it eliminates the reference to SBA Form 994C.
In a second bit of good news, SBA will no longer require the principal to complete and submit two other forms for these small contract amounts, SBA Form 994F (Schedule of Work in Process) and SBA Form 413 (Personal Financial Statement).
According to the American Subcontractors Association, “Paperwork burdens have real dollar costs that can deter participation in any federal program, especially for smaller dollar value transactions, which magnify the costs associated with the paperwork burdens.” The Cobb Law Group is proud to be a part of the American Subcontractors Group (“ASA”) and applaud the ASA for its efforts in supporting this new streamlined process.
If you are a small construction contractor, we would enjoy hearing how this new application process is likely to affect your business. Please leave a comment below!
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.