How To Obtain A Copy Of A Payment Bond On A Public Project

Let’s assume you are a first- or second-tier subcontractor on a public project and you’ve been stiffed by the prime contractor. You qualify as a claimant under the Pa. Public Works Contractors Bond Law of 1967, but, without a copy of the prime contractor’s payment bond, you cannot proceed with a claim against the surety. The prime refuses to cough up a copy of the bond. How do you get a copy of the bond?

The Bond Law provides an answer. A subcontractor on a public project has an absolute right to obtain a certified copy of a payment bond upon submission of an affidavit to the public owner. The affidavit must state that (a) the subcontractor has furnished material or performed labor for completion of the work provided for in the contract, and (b) it has not been fully paid for such labor or material. The public owner is permitted to charge the subcontractor a fee to cover the actual cost of the preparation of such copy.

Here’s a trick: if you request a copy of a payment bond with the required statements, and add that the statements are also made “subject to the penalties of 18 Pa.C.S. § 4904 (relating to unsworn falsification to authorities),” then the request will double as the required affidavit.

If you need assistance with this issue, call or email me for a no-cost consultation. I’ll be happy to assist in anyway possible.

Posted on February 21, 2017 by Christopher I. McCabe, Esq. in Surety and Bonding Comments Off

Pennsylvania Bar Institute Sponsors CLE Primer On Mechanics’ Liens And Bond Claims

On Thursday, December 5, 2013, the Pennsylvania Bar Institute (PBI) is sponsoring a continuing legal education course entitled “Primer on Mechanics’ Liens and Bond Claims.”

I will be a presenter, and I am looking forwarding to sharing my knowledge and experiences on the topic of bonds and bond claims on public construction projects in Pennsylvania.

The flyer on the PBI CLE course can be found here.

Posted on December 2, 2013 by Christopher I. McCabe, Esq. in Surety and Bonding Comments Off

Second Tier Subcontractor Recovers On Payment Bond That Waived Safe Harbor Provision

The Pennsylvania Commonwealth Court recently held in a published opinion that the “safe harbor” provision in the Pa. Procurement Code, which shields sureties from second-tier payment claims where the general contractor has made full payment to its subcontractor, can be waived by contrary language in a payment bond. This is welcome news for second-tier subcontractors on public works projects. It is not welcome news for sureties, and will likely result in an immediate revision to “deficient” payment bonds issued on Pennsylvania public projects.

In Berks Prods. Corp. v. Arch Ins. Co., Berks Products Corporation, a second-tier subcontractor, supplied materials on a Wilson Area School District project under a subcontract with a first-tier subcontractor. Skepton Construction, Inc., the general contractor, paid the first-tier subcontractor in full for the materials in question, but Berks remained unpaid to the tune of $52,679.26. Berks then sued Arch Insurance Company which had issued a payment bond to Skepton.

Arch’s defense was that, under the “safe harbor” provision found in section 3939(b) of the Pa. Procurement Code, full payment by Skepton to the first-tier subcontractor was a complete bar to Berks’s claim. The statutory “safe harbor” states that: “Once a contractor has made payment to the subcontractor according to the provisions of this subchapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.” The “safe harbor” protects general contractors from having to pay twice – once to the subcontractor, and second to the sub-subcontractor.

In response, Berks argued that certain language of the payment bond waived the “safe harbor.” The specific language in question stated that the bond would remain in full force and effect if either the general contractor (the principal) or its subcontractor failed to pay for labor or materials. Because the first-tier subcontractor failed to pay Berks in full, the trial court found that the payment bond remained in effect and that the “safe harbor” had been waived by Arch. On appeal, the Commonwealth Court upheld the trial court’s decision. In its decision, the Commonwealth Court explained its holding as follows:

… the payment bond drafted by Arch herein provided that the bond shall remain in full force and effect until such time as both Skepton, the principal/general contractor, and any subcontractor, such as Tauber, make full payment for any labor and/or materials supplied for the school project. As the trial court noted, this language ensured that a third party such as Berks, which provided labor and/or materials for the project, would get paid in full.

This decision could tilt the playing field in favor of unpaid second-tier subcontractors, but only if the payment bond mirrors the language found in the Arch payment bond, or if there is other language that defeats the “safe harbor.” On the other hand, the ruling may be fleeting as sureties can easily overcome the holding by modifying any troublesome language in a payment bond.

If you are a second-tier subcontractor on a public project in Pennsylvania and remain unpaid, you should demand a copy of the payment bond and examine it carefully to determine whether the surety has waived the benefit of the “safe harbor.” Better yet, contact experienced counsel for assistance in getting paid.

The Commonwealth Court decision can be found here.

Posted on August 21, 2013 by Christopher I. McCabe, Esq. in Court Decisions, Surety and Bonding Comments Off

Public Bidding 101: Bid Bonds

This post is one in a continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is the bid bond.

A bid bond is a form of bid security and is typically required to be submitted with all bids for public contracts in Pennsylvania. The instructions on public bids will ordinarily describe the bid bond requirements for the bid in question. These instructions should be followed lest the bid security is insufficient and the bid is rejected for that reason. A bid bond is essentially a guarantee, backed by a surety company, that the bidder will execute the contract if it is awarded to the bidder.

The failure of a bidder to execute an awarded contract will expose the surety on the bid bond to liability. That liability is typically 10% of the bid price. The bidder’s failure to execute an awarded contract may also subject the bidder itself to additional liability if the bid bond amount does not cover the spread between the bidder’s price and the next lowest price. Of course, the public entity must strictly adhere to the bidding requirements and award requirements before it can seek to enforce the bid bond. The failure to do so will likely invalidate any attempt to forfeit the bid bond.

Thus, the Commonwealth Court held in Travelers Indem. Co. v. Susquehanna County Comm’rs, 17 Pa.Cmwlth. 209, 331 A.2d 918, 920 (1975), that where a public entity failed to give written notice of its acceptance and provide the contract documents for execution there could be no forfeiture of the bid bond. Likewise, in Hanover Area School District v. Sarkisian Brothers, Inc., 514 F.Supp. 697 (M.D.Pa.1981), the federal district court held that a public entity’s failure to provide the lowest bidder with all the documents necessary to finalize the transaction as required by the bid instructions precluded recovery on the bid bond.

If you are bidder faced with a forfeiture of a bid bond for failure to execute a public contract you may have an out if the award was not made in accordance with the bidding instructions. As always, you should consult with an experienced attorney for assistance.

Posted on April 26, 2013 by Christopher I. McCabe, Esq. in Public Bidding 101, Surety and Bonding Comments Off

Public Contracting 101: Surety Bonds

This post is another in a series on the basic concepts and tenets of public contracting in Pennsylvania. Today’s post concerns surety bonds and surety claims. This topic is of critical importance to subcontractors and suppliers on public works projects.

Under the Pa. Public Works Contractors Bond Law of 1967, all public contracts for public works (defined as the construction, reconstruction, alteration or repair of any public building or other public work or public improvement, including highway work) in excess of $5,000 must be accompanied by both a performance bond (at 100% of the contract price, to protect the owner against non-performance) and a payment bond (at 100% of the contract price, to protect subcontractors, suppliers, and laborers against non-payment).

The surety bonds must be issued by a surety company authorized to do business in Pennsylvania. They must also be filed with the public entity awarding the contract.

Payment bonds protect subcontractors and suppliers who have performed labor or furnished materials on a public project. The protection extends to those with direct contracts with the prime contractor and those with direct contracts with a subcontractor or supplier to the prime contractor.

Claims against payment bonds are governed by the Pa. Bond Law. Direct subcontractors and suppliers can bring a claim 90 days after the last date work was performed or materials were supplied. Second tier subcontractors or suppliers must first give written notice of non-payment to the prime contractor, by registered or certified mail, within 90 days from the last date work was performed or materials were supplied.

If a prime contractor has paid its subcontractor in full, but the subcontractor has not paid its subcontractor or supplier, the second tier subcontractor or supplier is out of luck on a claim against the payment bond. In Trumbull Corp. v. Boss Contruction, Inc., 768A.2d 369 (Pa. Cmwlth. 2001), the Commonwealth Court ruled that in such a case the unpaid second tier subcontractor or supplier is barred by a “safe harbor” provision of the Pa. Procurement Code from bringing a payment bond claim. The “safe harbor” provision states as follows:

“Once a contractor has made payment to the subcontractor according to the provisions of this subchapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.”

The public entity is required to provide a copy of payment bond to a subcontractor or supplier who has not been paid upon submission of an affidavit to that effect.