Any filed subcontractor on a public building project in Massachusetts must provide a bond, if the general contractor requests it in his bid. These bonds are called payment/performance bonds but they differ from traditional payment bonds because they don't secure payment for those furnishing labor and materials. The scope of this bond is governed by M.G.L. c. 149, §44F. That statute requires a combination payment/ performance bond for the benefit of the general contractor. The payment part of the bond indemnifies the general contractor against any loss or expense he incurs from claims made against his payment bond by anyone furnishing labor and/or materials to the filed subcontractor. The performance part guarantees to the general contractor the complete performance of the subcontract work by the filed subcontractor.
The distinctive aspect of this bond is that it only protects the general contractor and the general contractor's surety. Unlike traditional payment bonds, these statutory "indemnification" bonds do not provide any protection to those who furnish labor and/or material to the party providing the bond. Those who work for or supply materials to a filed subcontractor can only look to the general contractor's payment bond to secure their payments. And to recover under that bond, a subcontractor or supplier must give written notice of its claim within 65 days of last performing work and must sue on the bond within one year. (See Construction Law Comments - Winter, 1995). Bonds provided by non-filed subcontractors are an entirely different matter. They are not controlled by statute. Instead, they are the subject of negotiation and private agreement between the general contractor and the non-filed subcontractor. Coverage afforded by these bonds depends on the terms and conditions stated in the bond. If a non-filed subcontractor provides a traditional A.I.A. payment bond, those working for that subcontractor may have the benefit of that bond to secure their payments, in addition to the security provided them by the general contractor's payment bond. As a practical matter, however, sub-subcontractors and suppliers on public projects would not look to the subcontractor's payment bond, unless they had lost their rights on the general contractor's bond. They would first look to the general contractor's payment bond because on Massachusetts public projects this bond requires payment of attorney's fees incurred in compelling payment, while traditional payment bonds do not. In summary, a filed subcontractor providing a bond is obligated only to furnish the statutory payment/performance bond which indemnifies the general contractor (and his surety) from loss, but protects no one else. A non-filed subcontractor has no statutory obligation to provide any bond, but the general contractor may insist on a bond in negotiating the subcontract. Subcontractors and suppliers working for a filed subcontractor must look exclusively to the general contractor's payment bond for security. Those working for a non-filed subcontractor also have rights on the general contractor's bond, but may in addition have the benefit of the subcontractor's bond. The best security, however, remains the general contractor's payment bond because it includes attorney's fees. For those submitting filed sub-bids, be prepared to provide the general contractor a payment/performance bond in the full amount of your subcontract price, if requested in the general contractor's bid. The penalty for not providing it is loss of the subcontract and forfeiture of your bid bond. For those furnishing labor and materials to a subcontractor, always check your bond rights before you start work. And always be aware of bond notice requirements so you don't lose your bond rights.
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