Because there is no right to secure a mechanic's lien against public property, Massachusetts law requires that payments due subcontractors and suppliers on public projects be secured by surety bond. The awarding authority on every public project costing more than $5,000 must require the prime contractor to furnish a payment bond for the benefit of subcontractors and suppliers providing labor or materials to the Project. The prime contractor is the only party whose payments are not secured by bond. However, the prime contractor has the security of dealing with a public authority that is supported by taxes and is unlikely to run out of money.
The coverage provided by payment bonds on public projects, and the conditions for recovering against them, are controlled by M.G.L. c. 149, §29. If any such payment bond contains provisions more restrictive than the statute, those provisions will be ignored. It is the statute, not the bond provisions, that governs recovery on the payment bond. Under c. 149, §29, every subcontractor is entitled to payment bond coverage no matter how far down the ladder from the prime contractor. Thus a subcontractor to a subcontractor to a subcontractor has bond coverage. Any material supplier to any level of subcontractor also has bond coverage. The only material suppliers not eligible under the statutory payment bond are those that furnish materials to other material suppliers who perform no labor at the Project.
The c. 149, §29 payment bond secures payment for all labor and materials used or employed in the Project. In addition, it covers lumber that is used but not incorporated in the Project, such as concrete forms; it covers specially fabricated materials ordered for the Project even if those materials ultimately are not used, so long as timely notice of the order was provided to the prime contractor; it covers transportation charges, but only for materials consigned to the prime contractor or a direct subcontractor; it covers rental equipment; and it covers transportation for rental equipment.
The conditions established by c. 149, §29 for recovery on the bond create two classes of bond claimants. The first class are those subcontractors or material suppliers who have a direct contract with the prime contractor; and the second class is everybody else. Those having a direct contract with the prime contractor need only file suit on the bond within one year of completing their performance to recover against the bond. Those claimants having no direct contract with the prime contractor must send written notice of their claim to the prime contractor by certified mail within 65 days of completing performance, and file suit against the bond within one year of completing.
The conditions for bond recovery by both classes of bond claimants are easy to satisfy, but crucial. Any failure of notice, where required, and any failure to file suit on time defeats a bond claim. The loss of bond coverage may prove devastating. First, the bond secures payment of amounts due. A judgment against a commercial surety will almost always be paid. A judgment against a general contractor or subcontractor may not be collectible. And second, under c. 149, §29, any judgment against the payment bond surety must include an award of attorney's fees to the subcontractor or supplier. This is a huge advantage because litigation is expensive and getting attorney's fees paid by the surety allows the bond claimant to recover the principal debt without deduction for substantial collection costs. Also, the threat of having to pay attorney's fees encourages many bond sureties to settle at an early stage.
Failure to meet conditions for recovery on the c. 149, §29 bond results in a loss of payment security, a loss of attorney's fees incurred, and a loss of leverage to force an early settlement.
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