Is a subcontract provision waiving all statutory payment bond rights against a general contractor and its surety on a Massachusetts public construction project enforceable?
Massachusetts law generally permits parties the freedom to enter into contracts as they see fit. Courts will usually enforce the provisions of an agreement unless its terms are illegal or against public policy. In the case of Costa v. Brait Builders Corporation and Arch Insurance Company (SJC-11011) (decided August 1, 2012) the Massachusetts Supreme Judicial Court (SJC) had to determine if a subcontract provision in which the subcontractor agreed to waive its statutory rights of recovery on the general contractor’s public payment bond was enforceable. The Court answered the question clearly deciding that such a waiver was not enforceable.
Costa entered into a subcontract with Brait Builders Corporation (BBC) to perform certain site work in connection with construction of an addition to a public elementary school in Bridgewater. In the subcontract, the parties agreed: “In the event that the subcontractor does not provide performance and payment bonds on a form acceptable to the Contractor, then the subcontractor waives its right to claim against the Contractor’s performance and payment bonds as provided to the Awarding Authority.” Costa didn’t provide performance and payment bonds to BBC.
The Project didn’t go smoothly. BBC accused Costa of failing to meet its schedule. Costa alleged that BBC was responsible for the project delays and Costa’s increased costs. This continued until BBC eventually terminated Costa. Costa sued BBC and its payment bond surety, Arch, alleging, among other things, that BBC and Arch were liable for Costa’s damages under the payment bond. Although the jury ultimately found in Costa’s favor against BBC, the trial judge dismissed Costa’s payment bond claims against BBC and Arch on the grounds that the waiver of payment bond claims in the subcontract was “applicable and … quite clear”.
Costa appealed this ruling concerning the payment bond. The SJC held that a contractual waiver of public payment bond rights was unenforceable as a result of “the strong public policy behind the [c. 149] sec. 29 bond requirement”. The Court found that the public payment bond statute was an outgrowth of the mechanic’s lien statute which itself specifically forbids a contractual waiver of mechanic’s lien rights (c. 254 sec. 32). The Court concluded that both the mechanic’s lien statute and the payment bond statute were designed to ensure payment security to those furnishing labor and materials on projects with the ultimate goal, on public work, of reducing the “incidence of subcontractors submitting higher bids to hedge against unreasonable delays in payment.” The Court further found that “the presence of the bond requirement throughout the statutory scheme for public construction is evidence of its significant importance.” Therefore, the SJC permitted Costa to recover against BBC and Arch on the payment bond despite the language of the executed subcontract to the contrary.
Another issue before the Court for consideration was whether Costa was entitled to consequential damages against BBC. The subcontract between Costa and BBC contained a “flow down” clause whereby Costa was bound to BBC as BBC was bound to the project owner by the Contract Documents. The general