Ensuring you get paid on a public project can be tricky if there’s no bond. As a subcontractor, a sub-subcontractor or a supplier, you may consider yourself lucky to have been selected for a public job. Why? Because in the event you are not paid, you believe you can put your faith in payment bonds, a type of debt security that municipalities use to finance new projects and improvements. But it doesn’t always work out that way.
You deliver materials. You do your work. You aren’t paid. Then you learn there is no bond. Unfortunately, you learn this too late, as you have already done the work and you are already owed money. Now what?
Before we move forward, let’s take a step back. What do you know about bonds?
What public projects need bonds?
In Florida, for a public job between $1 and $200,000, the municipality or school board responsible does not have to procure a bond. On projects of this scale, it’s highly likely there is no bond, so this work is where the risk lies. When the job is between $200,000 and $400,000, it’s optional for a municipality to have a bond. Any job greater than $400,000 must have a bond.
If you work on federal projects, which are governed by the Miller Act, those over $100,000 must be bonded.
Why is it different for a public versus a private job?
On private projects, you have the right to record a lien on the property. If you don’t get paid, and you have followed the notice requirements that the lien law requires, you have recourse. You can look to the property.
On public jobs you have no lien rights. So if there is no bond, where does that leave you? Your recovery will be based on your customer and your contract. If you have concerns about your customer’s ability to pay you on a public job, or concerns about your contract, you should address these issues before you start the job.
What does it mean to think ahead on a public job?
Verify, do not assume, that a job is bonded. Obtain a copy of the bond. Asking the general contractor who has the contract with the agency might be all that is involved. Just call. Keep in mind this may not be your direct customer.
Another way to obtain a copy of the bond is to submit a formal request to the public agency. This is done under the Freedom of Information Act (FOIA). Any municipal agency is required to give that to you, within a reasonable amount of time, if you make a FOIA request. Each county or school board operates a bit differently, so you may need to get specifics via call, email, going to an office in person, or a combination of all three.
You can also check public records. A copy of the bond should be recorded in the public records where the project is located. Google “public records (name of the county) county.” Once there, search by the contractor or the guarantor’s name. The bond should show up if it has been recorded and indexed properly. Keep in mind that it can take two days to three weeks for documents to appear in public records. It’s likely the fastest and easiest approach is to get in touch with a municipal agency directly and request a copy of the bond.
Avoid pay-when-paid provisions in your contracts. Under this scenario, if the owner does not pay the general contractor, that general contractor has no duty to pay a sub or sub-subcontractor. Your rights are very limited by having this risky provision in your contract.
Do include a stop-work provision in your contract. This means if you have a written agreement, which ideally you should – include a provision stating that, to the extent you are not paid in a timely manner, you have the right to slow or stop work. This doesn’t guarantee you get paid, but it stops the bleeding as the project continues and you aren’t being compensated.
Consider limiting your credit risk. For example, if you are going to deliver $150,000 materials on a job that has no bond, you may decide you won’t ship materials over $25,000 if you aren’t getting paid. Once the materials are in hand and the work is done, there’s no going back. Make these contractual decisions in advance to protect yourself.
When it is too late to protect yourself, how do you get paid on an unbonded project that isn’t paying?
Your recourse is two-fold. First, you can file suit for breach of contract for non-payment. You did work; you were not paid; you file a lawsuit. Secondly, you may sue the next level up in the work chain as well, so long as that link is not the government. So, a sub-subcontractor can sue the subcontractor, but also may be able to sue the general contractor for “unjust enrichment.” That means the GC may have taken payment from customer but has not paid you. The GC has received a benefit – been “unjustly enriched” – from your work and materials.
The risk in this claim is that sometimes a general contractor indeed got paid, but that money is being withheld because of a claim against a subcontractor. Perhaps work was defective or late, or more hiring had to be done to correct something. The GC may think he has not been unjustly enriched because the work was not done as promised. All in all, there are many factual issues to sort out to determine who is right.
Clearly, an eyes-open decision should be made as to whether to take the risk of working on a project without a bond. Consider the various outcomes before signing a contract. If it’s too late, a lawyer can advise you on possible next steps to get the money you earned.