Material Suppliers – Bond Insecurity
Of all participants in the public projects, material suppliers have the least payment security. That is so because the public bond statute (M.G.L c.149, §29) creates a distinction among suppliers based on who they supply materials to. Those who provide materials to the general contractor or to a subcontractor have bond coverage. Those who provide materials to another material supplier do not have bond coverage.
The distinction is not always easy to make. A subcontractor is one who furnishes labor in construction of the project. Normally, a subcontractor provides that labor at the project site, such as a mason or an electrician. However, that is not always the case. The Court has held that a millwork company providing wood trim to a public project was actually a subcontractor because it was required to fabricate the wood in accordance with project plans and specifications, even though all its labor was provided in the shop. The significance of that decision is that the supplier who provided lumber to the millwork company qualified for payment bond coverage. Had the Court concluded the millwork company was only a material supplier instead of a subcontractor, the lumber supplier would not have received payment under the bond.
Because it is their key to payment bond security, every material supplier should determine at the beginning whether the party to whom it is providing material qualifies as a subcontractor. Anyone providing labor at the project is definitely a subcontractor. Anyone who is specially fabricating materials in its shop in accordance with plans and specifications for the project is probably a subcontractor. Anyone who is simply delivering off the shelf materials is definitely not a subcontractor. Of course, there are large gray areas where the distinction between a subcontractor and supplier will be difficult to make. When in doubt, a supplier should be particularly careful about credit arrangements because the security of the statutory payment bond may not be available. Joint check arrangements or personal guarantees may provide some alternate form of security.
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