By Bruce Jervis
Public works payment bonds are intended to guarantee compensation for parties that furnish labor or materials to public projects. But what is “the sum justly due” to an unpaid subcontractor or supplier? Is it the set contract price or can it include additional damages stipulated in the contract?
The Michigan Supreme Court recently grappled with this issue. The court’s majority ruled that recovery against the bond could include a “time-price differential,” essentially interest on the unpaid balance of an account, as well as attorney fees stipulated in the contract.
Two judges dissented. One said the time-price differential should be recovered because it was integrally related to a material supplier’s cost, but the attorney fees should be disallowed. The other dissenter argued that both items should be disallowed as “remote damages” that would consume available payment bond funds to the detriment of other unpaid subcontractors and suppliers.
What do you think? Should payment bond protection be limited to the contract price of the labor or materials? Or, should it include late payment fees and attorney fees if stipulated in the claimant’s contract? Your comments are welcomed.