If an account goes unpaid and you’re unable to collect from your customer, a claim against the payment bond guarantees your cash. Just don’t get burned by mistakes commonly made with the bond claim process. Here are three costly mistakes.
1. Examining the Bond Terms, but Ignoring State & Federal Laws
Every payment bond has “terms” dictating how a claim should be made, but these terms are often irrelevant since state or federal laws control the claims process. If you rely on the bond’s terms and ignore the state law, then you’ll be doomed.
Improvements to state, county, or federal property, for example, must be bonded. Claimants must follow the state or federal procedures to make a claim against these bonds. More than 30 states have some type of preliminary notice requirement to make a bond claim (just like a mechanics lien claim). More than 45 states have a rigid filing deadline for bond claims.
Giving attention to the bond’s terms and not the applicable law is perilous. On the other hand, following the state or federal law for claim-making standards and ignoring the bond’s terms is usually a safe practice, as conflicts between the two are resolved in favor of the statutory standards.
2. Confusing Bonded Projects with Unbonded Projects
Are you sure you are working on a bonded project? Incorrect information can be fatal to your rights.
Generally speaking, projects on federal, state and county properties will be bonded projects and those on private property will be unbonded. Nevertheless, there are always exceptions. It is difficult to know the nature of every project. Incorrect information about a project may leave you protecting a claim you don’t have and ignoring measures that could preserve your rights.
This is a bigger problem than you may think. Construction projects are sometimes the product of Public-Private Partnerships, or the lease of public property to a private business (e.g., airport vendors). It’s hard to know the character of these projects.
Avoid this mistake in two ways:
(1) Research every project when starting to furnish; and (2) Request a copy of the bond.
3. Not Following Up with Data
Filing the bond claim document is an essential first step to getting paid on a bonded project, but it is not the only step. It is a mistake to think you can file the bond claim and wait for payment. Not only is this very unlikely to happen, but it’s actually dangerous, as your claim rights may expire while you wait.
Follow up with the bonding company. They will ask for backup information to prove your debt. Provide that information and follow up, follow up, follow up.
Many states have a statutory time limit for the life of a bond claim. If the claim representation delays long enough, the life of the bond claim may expire and then you will be out of luck.
As mentioned, the above post was first seen in the December addition of the CFMA Update and the post was written by Scott Wolfe of CFMA. For further information on this post, please contact the construction professionals of McKonly & Asbury.