Asserting a payment bond claim on a California construction project can substantially improve the likelihood of getting paid. This article discusses payment bond claims, the prerequisites to making a claim, and deadlines for asserting the claim and initiating litigation if necessary.
What is a Payment Bond Claim?
Unlike a payment application or invoice, a payment bond claim is made directly to the general contractor’s surety – a third party who has guaranteed payment for the project’s laborers, subcontractors, and suppliers by issuing a payment bond. A surety can either accept, reject, or negotiate a settlement of the claim. If litigation becomes necessary and you are determined to be the prevailing party on the payment bond claim, your reasonable attorney’s fees and costs are also generally recoverable. So, what’s the catch? There are important prerequisites and deadlines, which if not satisfied, can eliminate your right to make a payment bond claim. Many claimants fail to recognize the importance of satisfying these requirements resulting in a missed opportunity to get paid. In order to change that, claimants must diligently employ a process for satisfying these requirements on every job, without exception.
What are the Prerequisites for Making a Payment Bond Claim?
Generally, on private construction projects subcontractors and suppliers do not have direct contractual relationships with project owners and lenders. The subcontractors and suppliers are therefore required to serve a 20 Day Preliminary Notice upon the project owner, lender (if any), and direct/prime/general contractor. However, on public works construction projects, a claimant with a direct contractual relationship with the direct contractor (typically a 1st tier subcontractor) is not required to serve the 20 Day Preliminary Notice all other claimants are required to serve the notice.
What if I Forgot to Serve the 20 Day Preliminary Notice?
If you fail to serve the 20 Day Preliminary Notice, you can serve your payment bond claim directly upon the payment bond surety and direct/prime/general contractor within 15 days of the project’s Notice of Completion being recorded, or within 75 days of the project’s actual completion if no Notice of Completion is recorded.
Is the 15 day and 75 day saving mechanism available to anyone who failed to send preliminary notice?
Unfortunately not. A second tier subcontractor whose first tier subcontractor has been paid by the direct contractor in full for all progress payments, less any monies disputed in good faith, is unable to utilize the 15 day and 75 day saving mechanism.
What is the Deadline to File a Lawsuit to Enforce a Payment Bond Claim on Private Project?
On a private project, you must file your lawsuit to enforce a claim on a payment bond within 6 months of the Project’s completion or you will lose your payment bond claim.
What is the Deadline to File a Lawsuit to Enforce a Payment Bond Claim on Public Project in California?
On a public project, you must file your lawsuit within 6 months after the deadline to serve a stop payment notice. The deadline to serve a stop payment notice can vary between (a) 30 days after the recording of a Notice of Completion, Notice of Cessation, or Notice of Acceptance, or (b) if no Notice of Completion is recorded, 90 days after actual completion, i.e., acceptance of the work by the public owner. (See Civil Code § 9558.)