How Lien and Bond Claims Against State Projects Work
If you're unpaid on a private (commercial, industrial, residential) construction project, you have the right to file a mechanics lien against the property itself to collect the debt. When working on property owned by the state, this exact remedy isn't available, mostly because the state government isn't going to allow anyone to foreclose on its land.
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 required, 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 law 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:
- When Must The Bond Claim Be Filed?
In many states, those who contract with the prime contractor are actually excused from lodging a formal bond claim. However, please, please, please don't accept that sentence at 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 rather than later to avoid potential deadline issues, and consider some type of software to help you manage these deadlines.
- 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.
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.
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.
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.
