Lien Claims Under the Public Works Bond Act
As we noted in a prior post, depending on the nature of a project, a contractor or subcontractor in New Jersey may make a claim or claims under the Construction Lien Law, the Municipal Mechanic’s Lien Act or the Public Works Bond Act. This article will focus on the procedure for filing a claim for monies due and owing on a public works project. The Bond Act requires the general contractor on this type of project to furnish the public agency a bond in an amount equal to 100% of the contract price to secure payment for labor or materials provided to the contractor or its subcontractors. The Bond Act provides statutory protections for those who provide labor or materials on public works projects, and these scenarios present particular challenges as one must be familiar with the specific requirements in order to perfect a valid claim.
In dealing with claims under the Bond Act, the first determination that must be made is whether you are a “Third-Tier Claimant” which is defined as a beneficiary of the bond who does not have a direct contract with the general contractor. This is critical because a Third Tier Claimant must provide written notice to the general contractor that said entity is a beneficiary of the bond prior to commencing any work. Failure to do so will foreclose any such claimant from asserting a claim under the bond for payment of any labor or materials provided prior to the date that the written notice was given to the general contractor. On the other hand, if an entity has a direct contract with the general contractor, that entity is exempt from this pre-notice requirement.
Once this determination is made, a claimant must be sure to properly set the stage for a potential claim or lawsuit against the bond company. A beneficiary may file a statement of claim with the surety company within one year “from the date upon which such beneficiary shall have performed actual work or delivered materials to the project…” Knowledge of the Bond Act’s requirements is critical here, because although the beneficiary can file suit 90 days after filing the statement of claim with the surety, the filing of a lawsuit must occur within one year of the last date that work was performed. In essence, the claimant must file the lawsuit against the surety within one year from the last date that work was performed or materials were supplied as long as the claimant provided the statement of claim at least 90 days prior the filing suit.
Clearly, failure to follow the specific statutory requirements of the Bond Act can prove costly, effectively eliminating this method of collection which is often preferable to litigation given the often significant difference in terms of time and cost.