The Bond Claim Remedy on State and County Projects

So, if you can’t file a mechanic’s lien, what can you file? For this, let me direct you to a guest post I published for a good friend on his Construction Law Musings blog:  A Lien By Any Other Name Can Sound Just As Sweet.

The point of this article is that it doesn’t matter whether you can or cannot file an actual “mechanic’s lien” against a state or county project; there are related and just as powerful remedies available to you.  The trick is knowing the subtle differences between lien and bond claim remedies, and making sure you take advantage of your rights.

Once you’re certain you’re on a state or county work, you’ll need to follow the bond claim regulations for your state. Here is a guide to how to file your bond claim against a state or county construction project.

1) Preserve Your Bond Claim Rights By Sending Required Notices

Damn, you’re probably thinking, notices are required on state construction projects too? I have unfortunate news to you.  Not only are preliminary notices sometimes required on state and county construction projects, but they are frequently entirely different requirements from those on private projects in the same state (but not always).

As with private projects, it’s important to know and understand the notice requirements in your particular state. Send the notice that is require, maintain proof of sending or delivery, and do it at the very start of furnishing.

2) If Unpaid, Timely File Your Bond Claim

After you’ve furnished your labor or materials, if you remain unpaid it may be time to lodge your bond claim. There are two issues to consider:  (i) When must the bond claim be filed; and (ii) How is the bond claim filed.

Both of these questions are answered differently from state to state, although there are a lot of consistencies in states that have adopted a standard “Little Miller Act.“  The Miller Act is the bond claim laws governing federal construction projects. Many states have simply adopted the provisions of the Miller Act for their own state, and these are called the “Little Miller Act.”  If this is the case, the rules are the same state-to-state.  However, many states have not adopted the Miller Act word-for-word, contain their own state specific nuances, or have a statutory structure completely independent from the Miller Act.

With this in mind, I’ll address each of the two issues:

(i) When Must The Bond Claim Be Filed?

In many states, those who contract with the prime contractor are actually excused from actually lodging a formal bond claim. However, please, please, please don’t accept that sentence for face value and skip this step.

Not only does this step apply to a lot of potential claimants, but even if it doesn’t apply to you, it’s a good practice to send it anyway as it will protect you in the event you made a mistake about whether it was a required filing, and it will open the bond claim process with the surety.

As far as when these bond claim filings are required, there are generally two concepts across the states for this.  In some states, the bond claim is required within a certain time period after your last furnishing, with the most popular period being 90 days from last furnishing.  In other states, the bond claim must be filed within a certain period of time after the entire project’s acceptance by the state.  This time period is usually a bit shorter (30-60 days), and it’s risky, because you’re not always told when the project is completed.

It’s always best to get bond claims in earlier than later to avoid potential deadline issues, and consider some type of software (like the LienPilot or outsource deadline management to Zlien) to help you manage these deadlines.

(ii) How To File The Bond Claim

Filing a bond claim can actually be more complex than filing a mechanic’s lien claim. Mechanic lien claims are all alike – they are filed in the county recorder office, and the property owner is served.  That’s virtually the same everywhere.

Bond claim filing requirements are all over the place, however.

In some states, you’re required to file the bond claim with the county recorder like a regular mechanic’s lien, but this is actually only true in a minority of states.

More typically, the bond claim is “filed” by sending it certified mail, return receipt requested to one or more parties.  Most commonly, the prime contractor must be sent the bond claim, as nearly every state requires the prime to receive the claim.  In addition to the prime, states require the claim be sent to either (or both) the surety and the public entity commissioning work.

It’s important to know two things when filing your bond claim, therefore.  First, know who needs to receive it.  Second, know the surety.

Even if it’s not required that you send a copy to the surety, it’s a really terrific idea to do so. Sending a copy to the surety ensures that your bond claim is opened, as a prime contractor may sit on your claim and not forward it to the surety for processing, making the claim process longer and perhaps even jeopardizing your rights under the bond.  (Don’t know who the surety is?  Just ask).

3) Reply of Bonding Company, Providing Backup

Once you lodge your bond claim, the surety should contact your company and provide you with a “claim form.”  This claim form will ask you some basic information about your role in the project, and require that you sign and have notarized an acknowledgment of your claim.

The claim form will also request you provide backup materials about your claim, including invoices, contracts, correspondence, change orders, etc. – whatever you have to prove that you’re owed the money in your claim.

Get this claim form filled out and sent back to the bonding company as soon as possible, as the more you delay the return of the form, the longer your claim will go on.  It’s also a good practice to include your backup materials in the bond claim itself.  If you preemptively send it to the surety, that will get the ball rolling on your claim faster – which means a faster payment.

4) Followup with the Bond Representative

Don’t be surprised if you send in all of your project information, the claim form and respond to all questioning and then don’t hear anything back for some time.  Sureties have been known to procrastinate on processing claims, and so it’s a good idea to contact the surety and check on your claim.

When you receive the response from the bonding company, you should have been given information identifying a representative for your claim.  Give that person a call or email them and check on the status of your claim.  If more information is requested, get it to them.

5) File Lawsuit To Enforce Your Bond Claim

Just like a mechanic’s lien has an expiration date, so too does a bond claim. State laws require that a claim against a surety bond be “enforced” if unpaid within a certain period of time.  The timing varies, but can be as a little as a few months and as much as a few years – with the median being about 1 year.

No need to wait until the deadline, however.  If you file your bond claim, and it’s not paid within a reasonable period (i.e. 60 days), move on and file your lawsuit to enforce the claim.  These suits are typically filed against the prime contractor, the party you contracted with and the surety.

Long Answer: I’ve had a number of folks contact me in the past week or so inquiring as to whether they could file a lien against a federal or state project. While some companies have been doing state and federal works for years and know the claim procedures inside and out, the state of our economy has forced some outfits to experiment with federal and state projects for the first time.  I find that these companies know a good deal about mechanic lien laws as they relate to private projects, but are just uncertain how to file a similar claim on a public work.

By the way, if you’re not sure about whether a project is a state, federal or private project, check out this post:  The Difference Between Public and Private Projects. The Reader’s Digest version of this post however is this: look to who owns the property.  If the property is owned by the state, it’s a state project.  If it’s owned by a private company or person (including non-profits, churches and private schools), then it’s a private project.

If you’re unpaid for labor or materials furnished to a private project, your remedy is to file a mechanics lien against that project. As I posted about in a previous FAQ article, a mechanic lien is filed against the actual property where work or materials were furnished.  It creates a security interest of sorts – similar to a mortgage – in the property itself, and if you remain unpaid, and you file a lawsuit to enforce the lien, the courts may actually order the property sold to pay your debt.

Obviously, if on a state or federal project working on state or federal land, the State or US Government is not going to allow contractors or suppliers to obtain an interest in their land. Therefore, while there are remedies available to you on these projects, the remedy is not exactly like the private mechanics lien.  You’ll never get a piece of the property as compensation for your work.

To accommodate this protection of state and federal land, there are laws that require most state and federal projects to have a payment bond issued.  A payment bond is issued by a surety company and guarantees payment of all subcontractors, suppliers and professionals. A surety company is like an insurance company, and the bond itself acts like an insurance policy for payment of the laborers and materialmen.

So, if you’re unpaid on the project, rather than file a lien against the property itself, on state and federal projects you would file a lien against the payment bond.

While this sounds less secure, it is actually more secure.  A physical property can be over mortgaged, and there are all types of lien priority issues to determine whose claim ranks above the others. Payment bonds have no such problems.  If you timely make your claim, you’ll get paid, and surety bond companies are very,very rarely over leveraged.

These claims against the bond are called “bond claims,” “miller act claims,” and “little miller act claims.”  They are just as frequently referred to as simply state liens or federal liens.

Just like mechanic lien claims, filing a state or federal lien or bond claim is hyper-technical.  You must follow strict deadlines to file the claim, and in many instances, you’re required to deliver a preliminary notice at the start of your job.  The claim itself must contain certain data about your work and the project, and it must be delivered to certain parties in a certain way (i.e. certified mail, registered mail, restricted mail delivery, etc.).  Some states require state liens to be filed with the recorder, while other states don’t require an actual filing with the recorder, and only require filing with the agency commissioning work.

Zlien files state and federal bond and lien claims all across the country, and our LienPilot also manages the lien and notice deadlines and requirements for state and federal projects.  Want to learn more?  Comment below and I’ll be glad to answer any questions.

Instead, potential claimants must understand a completely different set of statutory requirements. If on a federal project, they will look to the “Miller Act.”  If on a state project, they will look to a “Little Miller Act.”

As a resource, Zlien has published a compilation of Little Miller Acts across the nation. The compilation is very easy to navigate, and once viewing a particular state, you are provided a table of contents for that state’s laws and the full text of the statute.

View it Here:  http://www.zlien.com/miller-acts/

What Is A Little Miller Act?

On state and federal projects across the entire United States, prime contractors are required to post bonds guarantying the performance of their contractual duties and/or the payment of their subcontractors and materials suppliers. If unpaid on these projects, the supplier or subcontractor can file a “lien” or “bond claim” against the bond. On federal projects, these bond requirements and claims are governed by the federal Miller Act. Each state has a “Little Miller Act,” which is a state statute based on the federal Miller Act.

Filing A Claim On A State or Federal Project

Now that you have easy access to the statutes, you may still be wondering just how you go about filing a claim against a federal or state project.  As we’ve explained in previous posts, the claim experience is quite different than on a private project.  Instead of actually liening the property, the claimant is making a claim against a project’s bond.

Here are some posts that explain these differences:

- Got A Public Project? Be Sure To Preserve Your Rights To Payment

- Is My Project Private, Federal, State…Or Something Different?

- The Difference Between Public and Private Projects

And remember that Zlien files bond claims on federal and state projects across the United States. For one low flat fee, you provide simple project information and we do all the leg work.  Click here to go through our Wizard and order now.

If on a federal project, the claim against the bond will be pursuant to the “Miller Act.” If on a state project, the claim against the bond will be pursuant to that state’s “Little Miller Act.”

While normally a very efficient system for getting claims paid, a problem arises when there is no bond to claim against.  This typically happens for one of two reasons: (1) The project cost is too low it doesn’t meet the minimum when bonds are required; or (2) A required bond just isn’t provided, contrary to the law.

Small Projects May Not Require Bonds

Not every county, state or federal project requires a bond. Depending on the applicable law, projects under $50,000 or $100,000 frequently do not require payment or performance bonds, leaving unpaid contractors without a bond claim remedy.

Under the federal Miller Act, for example, payment bonds are only required for projects that cost more than $100,000. 40 U.S. §3131. Those unpaid for construction materials or labor on these low-dollar projects will be unable to file a Miller Act bond claim

State and county requirements are very similar to the federal miller act (which is why it’s called the “little miller act,” after all). Many states, however, just have a different minimum project amount. In some states or counties, the minimum contract amount requiring a bond can be as low as $10,000 or $25,000.

Bonds May Not Be Provided Contrary to Law

The second reason why a bond may not be provided on a county, state or federal project is a lot more frustrating than the first reason. The problem is as easy to summarize as this: the law isn’t followed.

How, you may ask?  Well, in my own personal experience I have encountered a few situations that may serve as examples. Once, the US Army Corps of Engineers decided that the multi-million dollar project didn’t require a bond because it wasn’t the type of work that fell under the Miller Act provisions (it was). In another circumstance, a small county government just didn’t require it out of ignorance.  And finally, in the perhaps worst circumstance, a prime contractor provided a counterfeit bond and it was never examined or checked by the state.

In a fair world, there would be some remedy to these situations. When faced with these circumstances, however, the world is not always fair.

A great article about these circumstances was written on the Lorman website, titled:  Without a Net: Subcontractor Has No Recourse Against Municipality for Failure to Require Bonds. The article addresses a natural first-reaction to finding out that a bond was not required, specifically wondering: Can we file suit against the government entity for dropping the ball?

The issue of whether a municipality may be held liable to a subcontractor for failing to require proper bonding in accordance with a state Little Miller Act has long been a topic of interest. Although some state statutory schemes provide an express cause of action against the municipality for failure to require bonds, they are in the minority. In states not having an express right of action, the general rule is that the municipality may not be held liable for failing to ensure that proper bonds are in place.

Why Does It Matter?

Before explaining what distinguishes these projects from one another, let me talk a little about why it matters.

If unpaid on a private project, the laws in most states allow you to file a “mechanics lien” against the property.   This gives your company an actual interest in the real estate your labor or materials improved.   The lien must be filed within a particular period of time, and if the lien is not paid, you’re required to “foreclose” upon the lien to obtain payment, which could result in the property being sold at auction to obtain the funds to payoff your claim.

If unpaid on a public project, there is a much different experience.

Generally, your company is not able to file a “mechanics lien” against a public project because most states (and the federal government) prohibit any party from gaining an interest in public property.   As a result, most public construction projects may only proceed if a “payment bond” is issued.    In the event of non-payment on a public job, rather than file a lien the unpaid party will file a “claim” against the bond.   Instead of foreclosing on the property, the claimant will “foreclose” – so to speak – against the lien, eventually resulting in payment.

What is the Difference Between Public and Private Projects?

Easy.

99 times out of a 100, a project is private when owned by a private person or entity, and is public when owned by the government.

When the government is the United States or a federal agency, the applicable rules are found within the “Miller Act.”   We’ve written a good deal about Miller Act rules and claims here at the Construction Lien Blog.    When the government is the state or a state agency, the applicable rules are usually found within a “Little Miller Act” statute.    These vary state-by-state, a great resource on little miller acts across the country is linked below (and here).

Be very careful when performing work on a private school (i.e. private university) or for a non-profit agency, and even large public corporations.   We sometimes think of these types of organizations as “public” agencies, but that does not necessarily render them a “public construction project.”    Usually, such a designation is reserved for land and projects owned by the federal or state government.    If you’re unsure, it’s a good idea to ask, or to hire an attorney to research the question.

GREAT Resources for Public Lien Laws and Public Contracting Issues

Here are two great resources for folks looking to learn a little more about public contracting in general, and about bond / lien claims against public projects.

1)  Mike Purdy’s Public Contracting Blog:  Mike Purdy is a retired public contracting consultant out of Seattle, WA.  His frequently updated blog addresses public contracting questions and laws across the country.

2)  Law Office of David Bransdorfer Miller Act Summaries:   This website, offered by a New York law firm, provides summaries of the Miller Act, and each state’s version of the Miller Act.  It’s a great place to start researching the applicable public contracting claim / lien laws in your state.

Claims against sureties are beneficial because:  (1) It can reduce the prevalence of personality conflicts between the unpaid party and the general contractor; and (2) It is a guarantee that at the end of a proceeding, money will be there.

However, you can’t make a claim against a surety if you don’t know who the surety is.   And if you’re not on the best of a terms with a general contractor, you may fear that it won’t reveal the surety to you.

So, this begs the question:  how on earth do you discover the identity of a surety?

The answer is quite simple:  Just ask.  That’s right, just ask for it.

Who To Ask?

Under the Miller Act and most Little Miller Act statutes, the public agency in charge of the project is required to (and quite used to) disclose the identity of the surety to anyone who asks for it.

Using Google, you can generally always find the governing authority.   A governing authority will typically manage its contracts through:

(a) public works department;
(b) new construction department;
(c) purchasing department;
(d) capital projects department; or
(e) facilities department

Most of these governing authorities (almost all) will have a website that gives you some information about their public contracts.   Figuring out which department is in charge of the contract is generally a toss up, so you will likely need to navigate around government websites to find the best possible contact.

How to Ask

As I stated above, agencies are required to disclose the surety on the job….actually getting it, just depends on how difficult the agency will make it for you.

If a governing authority has a website, you will generally be able to find out at least a little bit of information about their projects. If the project is relatively new, they might still have bid postings, pictures, articles and reports posted.

Giving the agency a phone call will usually do the trick, but if you run into trouble, just send a certified letter making the request.  You can even have Zlien send this notice / request for you.   We’ll even figure out who to contact, saving your company valuable time and energy.

The result has meant tons of public work for contractors, who benefit both from Davis-Bacon wages and bonded work, which virtually ensures payment!

Zlien has taken the time to ensure that its clients know the basics of filing and preserving lien rights on the public job. A recent article describes your rights under the Miller Act, a federal series of laws which govern contracts for construction over the amount of $100,000.00.

But, did you also know that each state has what is called a “Little Miller Act.” These collections of laws mirror the purpose and structure of the Miller Act, namely providing rules for payment, security and claims on the public project.

For instance, did you know that every state or locally managed construction contract issued in Louisiana for a total of no less than $100,000.00, requires a performance and payment bond and demands that you file a sworn statement of your unpaid claim within 45 days of completion? (See La. R.S. 38:2241, et seq.) We’ve have reported on this before.

How about the great state of Washington (our home), which requires that a contractor provide 60 day notice of its right to a lien against a public contract’s retainage? (RCW 60.28, et seq.) Failing to timely file could result in forfeiture to timely payment, and your right to proceed in an action against the contractor’s bond.

Its important that contractors understand that it takes more than simple contractual compliance to ensure payment. Having a qualified lien management company on hand makes it all that much easier to feel secured on the jobsite!

Zlien’s $395 flat fee services includes tracking down and obtaining copies of the prime contractor’s bond, noticing the surety and prime contractor, and filing with the appropriate state or federal agency, your claim. Remember that our services also include all mailing and delivery confirmation.

Also, remember that in many cases, suppliers, second-tier subcontractors, and equipment lessors, may be required to issue preliminary notices of the materials they sell or lease, or the work that they will perform on a public project. Zlien’s $35 flat fee notices can save you!

Using Zlien’s Lien Pilot, you could greatly benefit from tracking deadlines and lien obligations. Please be sure to check out Lien Pilot and keep up with ConstructionLienBlog.com, for more information on how to protect your business.