Georgia Construction, Bond & Lien Law Blog


Waiver of Sovereign Immunity in Georgia Contract Claims

Posted in Case Law,Performand Bonds,Public Works Projects by Blue Blog on the October 1st, 2014

On September 22, the Supreme Court of Georgia ruled that the state’s sovereign immunity is waived for a surety’s claim against a contract with the state in State of Georgia Department of Corrections v. Developers Surety and Indemnity Company.

What is Sovereign Immunity?

Soverign Immunity and Georgia Construction Contracts

Generally, sovereign immunity protects the state and other government entities (such as the federal government) from being sued without consent. This doctrine comes from British law and embodies the idea that the government (or, originally, the monarch) cannot commit a legal wrongdoing. Governments may waive this defense of immunity – thereby agreeing to be sued – so that citizens with claims against them may seek proper recourse.
Before the United States began waiving its sovereign immunity, would-be claimants’ only recourse was to get Congress to pass a bill in their favor. The unwieldiness of that process eventually brought about sovereign immunity waivers for particular types of claims – such as contract disputes, import duties, and internal revenue complaints – in specialty courts, allowing the government to be sued. Today, governmental entities – from local municipalities to the federal government – voluntarily waive their immunity in a variety of situations.

How Does the State of Georgia Approach Sovereign Immunity?

In 1939, the Georgia Supreme Court recognized the historical presence of sovereign immunity in the state and noted that if the citizens preferred to allow suits against the government, they should seek the removal of the immunity through their elected legislators.  However, the people of Georgia embraced sovereign immunity by approving a constitutional amendment in 1974. Today, the Georgia Constitution allows for the state’s sovereign immunity to be waived by the General Assembly in specific situations and explicitly waives it for claims stemming from a breach of a written contract entered into by the state.

How Does Sovereign Immunity Impact Construction Contracts on Georgia Public Works Projects?

The State of Georgia Claimed that Performance Bond Company Could Not Sue State Agency due to the Doctrine of Sovereign Immunity:  In the case decided last week, the Georgia Department of Corrections – a state agency – contracted with a roofing company for work on a prison. The company obtained the required payment and performance bonds from a surety company. In addition, the roofing and surety companies signed an indemnity agreement that assigned the roofer’s right to payment under bonded contracts to the surety. The state allegedly restricted jobsite access to the roofing company, contrary to the contract terms, which inhibited the roofing company’s ability to perform under its roofing contract with the state agency. When the roofing company failed to perform under the contract, the surety fulfilled its performance bond obligations by providing another company to complete the roofing work. The surety later sued the state for breach, claiming it had no obligation under the payment and performance bond issued to the roofing company due to the state agency’s duty to provide access to the site.

Performance and Payment Bonds on State Prison ProjectSurety Prevails In the Lower Court:  The trial court ruled in favor of the surety, concluding that the state waived sovereign immunity by contracting with the roofing company and that the surety could stand in place of the roofing company since it assumed the obligations under the bond. The state appealed on the basis that the surety (the performance bond and payment bond company) was not a party to the roofing contract and therefore, it claimed, the state’s waiver of sovereign immunity for breach didn’t apply to the surety. The appellate court affirmed the lower court’s findings.

Surety Prevails on Appeal to Georgia Supreme Court:  On final appeal to the Georgia Supreme Court, the state lost again by the same reasoning: (1) the stated waived sovereign immunity by entering into a written contract, and (2) after paying the debts of the contracting party, the surety may stand in the place of that party for rights under the contract. As the Court noted, the constitutional waiver addresses the suit – not the party suing – against the state.
This decision comes just a week after the Texas Supreme Court addressed the sovereign immunity issue in Zachry Construction Corporation v. Port of Houston Authority relating to a general contractor’s delay claims against a local government entity. The Court held that the government could not claim an absolute defense against the contractor’s claims, although the Court was divided on this point. A Texas statute waives sovereign immunity for a contract claim for “balance due and owed.” The Court was split as to whether delay damages were “due and owed” under the contract since the no-damage-for-delay clause prohibited such damages.

 

Payment Bonds, Bid Bonds & Performance Bonds In GA & AL

Posted in Bid Bonds,Payment Bonds,Performand Bonds by Administrator on the March 9th, 2011
Today, we are giving our staff a break by inviting Kristin Bradley with SuretyBonds.com to write a guest post on the different types of bonds required in Georgia & Alabama.  You know, the legal disclaimer that we have to make….we are not responsible for the contents and claims of this article or the company or persons mentionen in the article.  Regardless, we hope you find this interesting.  Enjoy!
 

Although government agencies frequently require the use of contract bonds for construction projects in Georgia and Alabama, local contractors are often left to navigate the bonding process on their own. Getting grasp of how bonds work can help contractors feel better prepared to work with both surety providers and the government agencies that require the bonds.
How contract bonds work: Contract bonds are separate products from insurance policies and liens and should never be confused with either. The confusion probably arises because surety bonds, like insurance policies and mechanics liens, may allow harmed parties to collect recompense when contractors abandon their work mid-project or otherwise perform inadequately.
However, whereas insurance policies and mechanics liens are put in place with the assumption that claims are statistically likely at some point, surety providers execute contract bonds with the intention of avoiding claims and deterring unreliable contractors. Contractors who are unable to meet the application prerequisites will not be able to get a bond and thus will be unable to do work. This process helps weed out contractors who put their clients, and the general public, at greater risk.
Contractor License Bonds: Contractors typically have to secure license bonds before they get a business license to work within a certain area. Contractor license regulations vary by state, and different government agencies outline the specifications.
A number of different regulations outline rules regarding contractor licenses in Alabama, and they vary based on a contractor’s specialty or specific project. General contractors or subcontractors must must secure a contractor’s license from the state if they will be working on a project where labor and materials will cost $50,000 or more. A more specific example is the state’s Board of Heating & Air Conditioning Contractors, which requires a $15,000 contractor license bond for contractors working on heating, cooling or refrigeration projects.  Getting this type of bond in Georgia typically requires communication with the Georgia Construction Industry Licensing Board, which is made up of five state divisions related to the construction industry. The board requires a $25,000 general contractor licensing bond that must be issued by a surety agency licensed to do business in Georgia.
Bid, performance and payment bonds: Three of the most widely utilized contract bonds are bid bonds, performance bonds and payment bonds. Bid bonds provide a guarantee that a contractor will not increase the initial price bid submitted to a project owner. Performance bonds guarantee that a certain level of quality work will be completed. Payment bonds guarantee that the contractor will pay for all materials and subcontractors used during the project.
Alabama Bid Bonds: Alabama Building Commission form C-4 requires a bid bond’s penal sum to be 5% of the principal’s bid amount without exceeding $10,000.
Alabama Performance Bonds: Alabama Building Commission form C-6 requires a performance bond’s penal sum to remain equal to the contract sum as it is adjusted by any and all contract change orders. This means if a contract is written for a $250,000 project, the performance bond’s penal sum will be $250,000. If additional labor and materials increase the project amount to $300,00, the bond’s amount will increase to $300,000 as well.
Alabama Payment Bonds: Alabama Building Commission form C-7 also requires the bond’s penal sum to remain equal to the contract sum as it is adjusted by any and all contract change orders. In both cases the surety provider must approve the increase.
Georgia Bonds: In Georgia, different government agencies—such as the Department of Transportation, the Department of Revenue or the State Board for Residential and General Contractors—regulate separate aspects of the construction industry. Each agency will have its own individual expectations for the different kinds of contract bonds regarding the terms, penal sums and premiums.
Failure to purchase and maintain the necessary bonds as outlined by industry regulations can result in legal action against noncomplying contractors. The resulting fees and penalties are expensive to pay for, not to mention detrimental to a contractor’s professional reputation and credit score. Before beginning work on a project, contractors should make sure they fulfill all contract bond requirements. Finally, contacting a Georgia construction lawyer with any legal questions regarding the bond’s terms is always a good idea.
This has been an guest post by an online surety bond producer that offers over 25,000 bond types to professionals across the nation. The agency has a special interest in helping contractors and their lawyers understand the legalities behind the surety bond process.