ConstructionPro Week, Volume: 4 - Issue: 1 - 01/09/2015

Do Sureties Drag their Feet on Payment Bond Claims?

By Bruce Jervis

 

Unpaid subcontractors and suppliers have long been frustrated by the slow processing of claims against payment bonds. These bonds are the best form of payment security on public projects, yet collection can be complex and convoluted. A recent case from the Connecticut Supreme Court illustrates the problem.

 

The state “Little Miller Act” requires public works payment bond sureties to either pay or deny – based on stated good faith grounds – within 90 days of receipt of a claim. The statute is silent, however, regarding the ramifications of noncompliance.

 

An unpaid subcontractor submitted a claim and received no decision within 90 days, a clear violation of the statute. The sub argued that the surety had waived the right to defend the claim on the merits; the sub was entitled to full recovery as a matter of law. The Court, however, said it would not read a penalty into the statute when the legislature had declined to expressly impose any sanction. The subcontractor had no recourse but to continue to pursue its claim.

 

In ruling as it did, the Court pointed out that sureties are caught in the middle between the bond claimant and the principal, the prime contractor. They are dependent on information and documentation from those adversarial parties, as well as third parties who have little motivation to promptly assist.

 

What do you think? Is this an excuse for surety foot dragging, a device to delay payment as long as possible? Or, are sureties truly caught in the middle in these situations? I welcome your comments.

 

COMMENTS

The Surety should have up to 30 days to investigate a claim and then be subject to triple damages if it is a valid claim.
Posted by: Clem F. Lesch - Tuesday, January 13, 2015 12:37 PM


I agree with the above. The owners and surety/banks and somewhat less the contractor hold all the money and power. We need to return some to the subs as long as they perform properly.
Posted by: Stephen J. Stump - Tuesday, January 13, 2015 6:38 PM


 









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