by Mark A. Cobb
Most credit professionals involved in the construction industry understand the general rule that there are unique remedies for non-payment issues on Georgia construction projects. Furthermore, they understand that filing and perfecting payment bond claims and materialmen’s liens are among the most useful tools to ensure payment on bad debt. Generally speaking, liens are useful when the construction project is owned by a private individual or entity, and payment bonds are a useful collection tool when the construction project is owned by a public entity such as a state or federal government project.
Did you know, however, that payment bonds are not limited to governmental projects? It’s true, many large private construction projects in Georgia are also covered by a payment bond!
Practical Tip #1: If you are a supplier or subcontractor working or supplying on a private construction project in Georgia, ask whether or not the project on which you are working is covered by a payment bond.
If the project is covered by a payment bond, then if you do not receive payment for your labor, equipment or services, then you may be able to simultaneously file a payment bond claim and file a mechanic’s lien against the real estate where the project is located. If you are able to do this, then your odds of recovering bad debt increase substantially!
Look at it this way:
- If you do not file a lien or make a payment bond claim, then only the person or entity with whom you contracted owes you the money;
- If you file a suppliers or subcontractor’s lien, then you are adding the owner of the project as another possible source of recovery;
- Similarly, if you make a payment bond claim, then you are also adding the surety as another possible source of recovery.
It is important to note that payment bonds on private sector projects are similar–but not the same–as payment bonds on public projects. Public payment bonds are required by statute and must meet statutory obligations. Since construction liens are the statutory remedy for privately-held projects, private project payment bonds are not governed by statutes. Instead, they are a contract between the surety and the project owner or general contractor for the benefit of subcontractors and suppliers.
Practical Tip #2: Since payment bonds on private projects are governed by contract law, you must read the bond very carefully to ascertain your rights and obligations under the bond. Failure to comply with the payment bond’s requirements could result in a denial of your claim.
For example, a private project payment bond may require that the notice of your claim be sent to a particular address or via a particular method. In order to seek payment pursuant to the payment bond in this example, you must provide the notice as required by the payment bond. If you do not carefully read–and follow–the requirements in the bond, your claim may be lost forever. But, if you meet the requirements, you may find yourself in a great position to recover the debt more easily and more quickly.
If you have any questions about filing a claim against a payment bond on a private project, please contact the Cobb Law Group to discuss your situation with one of our construction lawyers today!
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.