Presenting a live 90 ‐ minute webinar with interactive Q&A Payment and Performance Surety Payment and Performance Surety Bonds in Construction Projects Asserting or Defending Surety Bond Claims to Maximize Recovery or Protect Rights and Interests THURSDAY, OCTOBER 20, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Gina M. Vitiello, S hareholder, Chamberlain Hrdlicka , Atlanta Glenn C. Kennett, S enior Associate, Pillsbury Winthrop Shaw & Pittman , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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PAYMENT BONDS Gina M. Vitiello gina.vitiello@chamberlainlaw.com 404.588.3426 404.588.3426
PAYMENT BONDS PAYMENT BONDS • Joint and several liability of contractor and Joint and several liability of contractor and surety • Payment of “downstream” parties who y p provide labor and/or materials and/or equipment • So in addition to contract claim against contractor, there is a separate bond claim against contractor and surety against contractor and surety • Privity usually not required—notice issues 6
TYPES OF PAYMENT BONDS • Miller Act (40 U.S.C. § 3131 et seq.) Miller Act (40 U.S.C. § 3131 et seq.) – Generally contract of $100,000 or more (Payment bond = contract amount; performance bond = “adequate” amount). – Exclusions/opt outs include (1) some cost- plus contracts marine contracts etc (40 plus contracts, marine contracts, etc. (40 U.S.C § 3134); and (2) possibly on foreign contracts if “impracticable” (40 U.S.C. p ( § 3131(e)). – Approved corporate sureties at htt http://www.fms.treas.gov/c570/c570_a-z.html. // f t / 570/ 570 ht l 7
TYPES OF PAYMENT BONDS • State Little Miller Acts State Little Miller Acts – Generally required for contracts of certain $$ size or more – If bonds are required, contract not valid If bonds are required, contract not valid without them • Private Bonds (AIA A312 is very common) 8
PAYMENT BOND CLAIMANTS • Miller Act payment bond Miller Act payment bond – Intended to protect “all persons supplying labor and material” 40 U S C § 3131(b)(2) As labor and material 40 U.S.C. § 3131(b)(2). As applied: – 1 st tier sub/supplier: YES 1 tier sub/supplier: YES – 2d tier sub/supplier of 1 st tier sub: YES – 2d tier sub/supplier of 1 st tier supplier: NO 2d tier sub/supplier of 1 tier supplier: NO – 3d tier: NO 9
PAYMENT BOND CLAIMANTS • Little Miller Act payment bonds Little Miller Act payment bonds – Some have broader coverage than federal act S h b d th f d l t – Example: a supplier to a second tier sub is a claimant under the GC’s bond 10
PAYMENT BOND CLAIMANTS • Private payment bonds Private payment bonds – View them as contracts with claimants as intended beneficiaries – Language of the bonds controls as to who may make a claim – AIA 312 – anybody who has a contract with contractor AIA 312 anybody who has a contract with contractor posting bond or a subcontractor to furnish “labor, materials or equipment” plus anybody else who could assert lien under controlling statute – Private bond will also (usually) dictate when and how to make the claim to make the claim 11
Statutes of Limitation/Notice • Miller Act payment bonds (41 U.S.C § 3133) Miller Act payment bonds (41 U.S.C § 3133) – If not paid within 90 days of last providing labor/material can sue (venue=where job is labor/material, can sue (venue=where job is . . .but see but see recent case discussed below) – Suit must be filed within 1 year of last providing Suit must be filed within 1 year of last providing labor/material – A window between days 91 and 365 to sue A i d b t d 91 d 365 t 12
Statutes of Limitation/Notice • Miller Act payment bonds (41 U.S.C § 3133) Miller Act payment bonds (41 U.S.C § 3133) – If not in privity with contractor providing bond, must give written notice to that contractor within the first 90 give written notice to that contractor within the first 90 days – A waiver of Miller Act rights is only valid if written A waiver of Miller Act rights is only valid if written, signed by party waiving rights and signed after that party furnished labor/materials=waiver in subcontract void. . . Lots of contradictory/conflicting cases re how y g to treat “pay if/when paid” clauses and clauses requiring subcontractor to allow general contractor to exhaust administrative remedies. Are they unenforceable waivers? Answer later unenforceable waivers? Answer later. 13
Statutes of Limitation/Notice • Private payment bonds: Private payment bonds: – State law will control – Private bonds will often contain shortened Private bonds will often contain shortened limitations periods – Some states allow a bond to establish a – Some states allow a bond to establish a limitation period that is shorter than the statutory period; other states say it is against y p ; y g public policy, and ignore the shorter period contained in the bond 14
Statutes of Limitation/Notice • Notice requirements in private bonds are no different than notice requirements in a contract. So failure to comply exposes you to same risks as if you fail to follow l t i k if f il t f ll contract notice provisions • AIA A312 Payment Bond – Must submit “claim” to surety before filing suit; also, if no privity with party providing bond, notice to that party within 90 days of last labor/materials is required last labor/materials is required – Surety responds to claim in 60 days (2010 version, contrasted with 45 days in 1984 version which is still being used), or may be exposed to attorneys’ fees d ’ f 15
Costs covered under Miller Act payment bonds t b d • Labor Labor Union dues Supervision Supervision Lodging • Materials Materials • Rental equipment • Extra work • Extra work Including reasonable profit on extra work 16
Costs covered under Miller Act payment bonds • Delay Damages - Historically not recoverable because they Historically not recoverable because they were not viewed as labor and materials incorporated into the project p p j - Now some jurisdictions allow increased Now, some jurisdictions allow increased labor and materials due to delay 17
Costs covered under Miller Act payment bonds • Delay Damages - U .S. ex. rel. Pertun Construction, Co. v. Harvesters Group, Inc., 918 F.2d 915 (11 th Cir. 1990) h “We hold that the Miller Act allows recovery from the surety for increased out-of-pocket costs caused by surety for increased out of pocket costs caused by delay and that the subcontract provision regarding no damages for delay does not preclude recovery under th these circumstances.” i t ” - Lost profits on delay damages not allowed - Lost profits on delay damages not allowed 18
Costs covered under Miller Act payment bonds Interest • Permitted to recover if provided for by state Permitted to recover if provided for by state law or contract 19
Costs not covered by Miller Act payment bonds • Insurance premiums • Lost profits p • Capital equipment costs/use of owned equipment • Attorneys’ fees - Unless provided for by federal statute or contract between claimant and principal 20
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