ConstructionPro Week, Volume: 5 - Issue: 22 - 06/03/2016

Should Payment Bonds Cover Interest and Attorney Fees?

 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.

 

COMMENTS

Absolutely not. Covering time and attorney's fees is not a knowable risk at the time the bond is written. Bonds are expensive and difficult enough to get as it is. There is nothing to say that a subcontractor or supplier can't go after these other costs through the legal system.

The ultimate result of including non-contract price costs will be to greatly increase the cost of bonds and diminish the number of general contract bidders.


Posted by: Eden Milroy, Pilot Development Partners, Inc. - Friday, June 03, 2016 1:11 PM


 









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