Do You Have Bond Claim Rights if You Sold to Owner on Public Project

Furnishing to a Public Project & Your Customer is the Owner – Do You Have Bond Claim Rights?

Are you furnishing to a public project? Is your customer the project owner? Be careful, as typical mechanic’s lien and bond claim rights will not apply.

“Can’t I just file a mechanic’s lien?”

You may be saying, “If I haven’t been paid, I’ll just file a mechanic’s lien.” But, mechanic’s liens cannot be filed against publicly owned property – it’s the law. Because you cannot file a lien against public property, the statutes were written to provide alternative remedies: payment bonds, and in some states, liens on funds/public improvement liens.

“OK. If I can’t file a mechanic’s lien, can I make a claim against the payment bond?”

Unfortunately, no. When furnishing to a public or federal project, typically, the remedy to recover monies due is to make a claim against the general contractor’s bond. If the general contractor is not in your contractual chain, you cannot make a claim against their bond.

Let’s get visual!

Here’s an example of the contractual chain for a public project.

The owner hired the general contractor and the general contractor hired various subcontractors and suppliers.

If the subcontractors or suppliers aren’t paid, they can seek relief via the general contractor’s payment bond.

But let’s see what happens when we remove the general contractor.

When we remove the general contractor from the picture, the bond “disappears” as well. Once there is no bond to claim against, the suppliers are left with one option: pursue a claim directly against their customer who, in this case, is the project owner.

“Can I file a public improvement lien? After all, ‘public’ is in the name!”

Unfortunately, the answer to this question is also no. On public projects where there is a public improvement lien, you are filing a lien that freezes the funds owed by the owner to the general contractor. Since you contracted directly with the owner, there is no general contractor whose funds you can lien.

“OK, so tell me what I can do.”

As mentioned above, in the event you have a contract with the owner on a public project, and you are not paid, you would attempt recovery of monies by pursuing the project owner directly. We often refer to this option as Suit Against Your Debtor.

“Does that mean I’ll never get my money?”

Don’t lose hope. When contracting with the owner on a public project, you don’t have the security of a bond or mechanic’s lien, but that doesn’t mean you won’t ever recoup your money. Once monies are past due, seek guidance from a legal professional that has experience in construction litigation!

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