How to Get the Bonding Company to Pay - California Webinar

In this blog, presented by SunRay Construction Solutions and William L. Porter, Founder & President, Porter Law Group Inc., construction professionals in California can learn in detail about what steps should be followed to make sure that the bonding company makes the payment successfully.

What Are the Different Types of Bonds?

In this blog, we will focus on two main types of bonds:

• Payment Bond – This is one of the main types of bonds that you will come across, especially when working on public projects. It is important because if the general contractor doesn’t pay you, then this bond will be your source of payment. A payment bond may also be sometimes available on private projects. The main limitation to keep in mind is that a payment bond is typically mandatory on projects which are worth $25,000 or more. Also, this payment bond is available for subcontractors and suppliers.

• “Miller Act” Payment Bond – The other type of bond is the Miller Act bond which is available only on Federal projects. This is the only remedy that you have on a federal project to pursue whoever is supposed to pay you. Also, the Miller Act payment bond is available only to limited subcontractors and suppliers.

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What Are the Prerequisites to a Bond Claim?

Here are some of the prerequisites to a bond claim.

A) California Project Payment Bonds

• As mentioned earlier, private projects don’t usually require a payment bond. You will have to check your contract and subcontract to see if there is a payment bond on the project. However, public jobs will almost always require the payment bond.

• One of the main prerequisites on a payment bond is the Preliminary Notice. This document should be sent out between when you contract for the work and 20 days into the project. This is a mandatory requirement for subcontractor and suppliers on private projects.

• In public projects, it is not mandatory for a first-tier sub, i.e., a subcontractor who has a direct contract with the prime contractor, to send the preliminary notice. But second-tier subs and suppliers must send a preliminary notice as a prerequisite to a payment bond.  

• Next, we have the Payment Bond Notice, another document that needs to be sent out. However, it is not a mandatory required, but it is highly recommended that you send it out.

• Now you must send out the Payment Bond Notice only after you know the full amount that is owed to you and the payment is delinquent. This means you will send out the document only when you are not owed anything further.

• It is recommended that you send out the Payment Bond Notice at the same time as recording your mechanics lien or stop payment notice. However, it is also possible to proceed with filing your lawsuit which includes a payment bond claim even if you haven’t first served the Payment Bond Notice. The best course of action is to talk to your attorney on how to proceed with it.  

B) Federal Project Payment Bonds Under the Miller Act

• There is no preliminary notice ever required on Federal Projects.

• But if you are someone who has a contract with the first-tier subcontractor, then you must serve the 90-Day Notice on the direct contractor.

• This notice must be sent no later than 90 days after you as a claimant last furnished work or materials to the project. If you fail to send the notice within the 90 days, then you will not have any rights to make a claim on the Miller Act payment bond.  

Timing of Your Bond Claim Lawsuit

Your bond claim lawsuit's timing is crucial. As mentioned earlier, you have different deadlines like 20 days, 90 days, etc. If you fail to meet even one of these deadlines, then the bonding company will have a valid reason to disregard your bond claim and avoid making the payments. So, you must ensure you are meeting all these deadlines. Here are the key deadlines for the timing of your bond claim lawsuit.

A) California Public & Private Bond Claims Lawsuit Deadlines

• If there is a valid Notice of Completion (NOC), then the lawsuit deadline is 30 days plus 6 months from the recording of the valid NOC.

• An NOC is considered valid only if the owner records it within 15 days after the project completion.

• If there is no valid NOC or the NOC is not recorded, then the lawsuit deadline is 90 days plus 6 months from when the project was completed.

• Also, lawsuits must be filed in the California State Court System.  

B) Miller Act Claims on Federal Projects Lawsuit Deadline

• The rules on federal projects are completely different.

• The lawsuit on a federal project must be filed no later than one year after your last work was performed. Note that the deadline is triggered from the completion of your work and not the completion of the entire project.

• Also, the lawsuit must be filed in the local Federal Court in the District where the work was performed.  

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Special Rule on Federal Project (Miller Act) Bond Claims

There is a special rule on federal project bond claims. In a typical project structure, you will have:  

• The public entity at the top of the construction chain followed by the original contractor.  

• The original contractor is followed by the first-tier subcontractor and a material supplier.

• The first-tier subcontractor will be followed downstream by the second-tier subcontractor and material supplier.

• Going further down, the second-tier subcontractor may have a third-tier subcontractor and a material supplier or a material supplier supplying materials to material suppliers up in the chain.

As per the special rule, if you fall in the last category, i.e., if you are a third-tier subcontractor or materials supplier supplying materials to material suppliers who are up in the chain, then you are not eligible to make a claim on the Miller Act bond. The original contractor also cannot make a claim because they are the ones who must provide the bond and make the payments.  

So, if you are working on a federal project and you fall into the last category, then you may have to consider whether you want to work on the project or not. Because you will not have any bond rights, and since it is a federal project, there is no scope for filing for mechanics lien or stop payment notices as well.  

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What Are Some of the Common Errors?

Below are some of the common errors that construction professionals may end up making which can affect their payment rights.

• Subcontractors and suppliers may fail to serve a preliminary notice when working on California public and private projects.  

• Failure to file a lawsuit within 30 days (if there is a valid NOC) or 90 days (if there is no valid NOC) plus 6 months on public or private California projects. You also need to bear in mind that if you are also doing a mechanics lien and stop payment claim, then the deadline is much shorter. Since you want all the claims to be addressed in one lawsuit, it is best to get everything done as early as possible.

• Second-tier subcontractors and lower subs and claimants may fail to serve the 90-Day Notice after last furnishing of work or materials on Federal projects.

• Failure to file the lawsuit within one year after you last furnished work of materials on a federal project even if the project is still under construction. Remember that when we say completion of your work, it refers to your contract work. It does not include any warranty work or punchlist work.

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Key Recommendations

To summarize, here are some recommendations you should follow to ensure you are on the right track.

• Subcontractors and suppliers working on California public or private projects must always serve a Preliminary Notice on the required parties. Also, make sure that you serve this notice sometime after you contract, but no later than 20 days after you have furnished materials or work on the project.

• While working on California projects, if you are unpaid and don’t receive your final payment, do not wait for more than two weeks to start looking up your lawsuit deadlines.

• Once your California project ends, your bond claim lawsuit deadline is triggered and this can be as early as 30 days, plus 6 months after the project is completed.

• You may also have mechanics lien and stop payment notice rights, so you need to be aware of those rules and deadlines as well.  

• On Federal projects, your one-year lawsuit deadline begins from when you finish your work and not when the project ends.  

• Remember the special rule on federal project bond claims. If you fall in the last category, then you need to consider whether to work on the project or not because you will essentially not have any payment rights. Your rights will be based only on the contract or subcontract that you have.

• Finally, follow the deadline rules as diligently as possible. You can negotiate with the bond company as you progress. The bonding companies will typically wait for you to make a mistake, and the most common mistake is missing out on a deadline. So, make sure that you avoid this crucial mistake and secure your payment rights.

Common Questions Contractors Ask

1. What’s the difference between a Payment Bond and a Miller Act Bond?

A Payment Bond is for public and some private projects, ensuring payment if the general contractor fails to pay. A Miller Act Bond is for federal projects and is only available to those with direct contracts with first-tier subcontractors.

2. What are the prerequisites for a bond claim on a California public project?

Send a Preliminary Notice within 20 days of starting work or supplying materials. Sending a Payment Bond Notice is recommended if payment is delinquent, ideally alongside a mechanics lien or stop payment notice.

3. What are the bond claim lawsuit deadlines for California projects?

For projects with a valid Notice of Completion, file within 30 days plus 6 months from the NOC. Without an NOC, file within 90 days plus 6 months from project completion.

4. Are there special rules for federal bond claims under the Miller Act?

Yes, third-tier subcontractors or suppliers cannot claim under the Miller Act. File a 90-Day Notice if you have a direct contract with the first-tier subcontractor, and lawsuits must be filed within one year after completing your work.

5. What are common mistakes to avoid with bond claims?

Avoid missing the Preliminary Notice, missing lawsuit deadlines, and not understanding federal project requirements. Ensure all notices and filings are timely and accurate.

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