Playing the Game on Two Fields – Bond Claims for State vs. Federal Projects

If you do both federal and state public works projects, you need to know the key distinctions for getting paid on under payment bonds for those projects!

There are both federal and state laws that require the prime contractor to furnish a payment bond for the protection of subcontractors and material suppliers on federal and California public works construction projects.   

Payment bonds function to provide security to ensure that subcontractors and material suppliers get paid for their labor and materials provided on federal or state projects as an alternative to securing their rights to payment by way of a mechanics’ liens (which are allowed on private property projects). 

A mechanic’s lien results in a subcontractor or supplier having an ownership interest in the project and property and it allows that sub or supplier to foreclose on that property, similar to what a lender can do when the property owner defaults on a mortgage. So, mechanics’ liens are not allowed on federal or state projects because private companies or individuals can’t have an ownership interest in land or a building that is owned by the federal government or any state or local government (including school districts and other government agencies).

Even though both state and federal laws require bonding for publicly owned projects, the process and timing related to bond claims differ greatly!

First, on California public works projects, a 20-day preliminary notice is required for any subcontractor or supplier who does not have a direct contract (“contractual privity”) with the prime contractor. It is recommended that a 20-day preliminary notice is served for all projects as a routine matter so that you don’t have to worry about whether or not you have contractual privity.

While a 20-day preliminary notice is not required for federal projects, a claimant who does not have contractual privity with the prime contractor must serve a claim notice on the prime contractor no later than 90 days after the claimant last provided material or labor to the project.

This is the first instance of the difference in timing and process to secure payment rights against the payment bond for California public works projects vs. federal projects.

Making a claim against a prime contractor’s payment bond involves beating tight deadlines.  But, the triggers for those deadlines is where the confusion comes in.  For public works projects in California, the deadlines relate to when the entire project is completed (or the cessation of labor if the project is not ever completed). Thus, the trigger date that sets the deadline to file suit against the payment bond on a California public works project does not relate to the completion date of the claimant’s work. 

But, for claims against a payment bond for a federal project (known as a Miller Act claim), the deadline is triggered by the last date on which the claimant performed its labor or last supplied the material to the project. 

For California public works projects, the deadline to file a lawsuit against a payment bond is six (6) months after the period in which to file a stop payment notice, which is 30 days if a timely notice of completion (or cessation) is recorded, or 90 days after project completion (or cessation) if a notice of completion (or cessation) is not timely recorded.

For federal projects, the deadline to file a lawsuit against a payment bond has nothing to do with when the project is completed. Instead, it is one (1) year after the claimant last provided its labor or materials for the project.

Another important thing to remember is that other states’ public works projects have different deadlines than California, with some states following the federal requirements.

So, if you want to play in both state and federal project arenas, you’d better keep up on the different processes and deadlines! It’s best not to allow yourself to get strung along with a promise of payment at some unknown future date.

A better idea is to act quickly to secure your payment bond rights if your work is completed or you’ve finished supplying materials to the project, even if the project itself is not yet completed.