Hunt Ortmann is one of the foremost authorities on California construction law, contracts, dispute resolution and litigation offering additional legal services in the areas of business and commercial law, employment matters and labor law compliance, real estate, insurance and suretyship.
by Wahid Guirguis, Esq.
It is extremely important to know whether the project you are working on is public or private. That determination will dictate what payment-security tools can be used. The proper and necessary prerequisites to enforce any payment claim on the project must also be followed. Unfortunately, a subcontractor learned these lessons the hard way in the case California Paving & Grading Co. Inc. v. Lincoln General Insurance Co. (2012).
In order to enforce a labor and materials bond claim on a public job, a claimant must either serve a preliminary notice if required to do so under the law, or alternatively, make a claim on the bond within 15 days after recordation of a notice of completion. If no notice of completion has been recorded, you must make your claim within 75 days after completion of the work of improvement. The lawsuit on the bond claim also has to be filed within 6 months from the expiration of the stop payment notice period.
In this case, the subcontractor filed suit against the general contractor and its surety, on the labor and materials bond, seeking to recover $55,958 plus interest. The surety demurred (attacked the complaint at the outset of litigation) on the ground the complaint was time-barred arguing that the subcontractor failed to submit a written claim within 75 days after completion and further failed to file the action within 6 months from the expiration of the stop payment notice period.
In opposition, the subcontractor contended the improvements for which the bond was issued are subdivision improvements, not a public work within the meaning of the Civil Codesections. Therefore, the payment bond is not a public works payment bond and the foregoing statutes of limitations do not apply. The trial court disagreed and found that the deadlines stated above applied because the project was contracted for by the City, a public entity and thus a public work. The subcontractor appealed.
The threshold issue for the Court of Appeal was whether the project was for a public work.Civil Code Section 3100 defines “public work” as “any work of improvement contracted for by a public entity.” The Court held that the subdivision improvement agreement and contract between the developer and the City expressly required the developer, at its “own cost and expense”, to construct and install all public improvements required in and adjoining and covered by the final map.”
In furtherance of that contract with the City, the developer entered into a contract with the general contractor to construct the public improvements. The general contractor in turn contracted with subcontractor. Because the subcontract was in furtherance of the underlying agreement between the City and the developer, the subcontract was for a “work of improvement contracted for by a public entity.” (§ 3100.) Therefore, the trial court properly rejected the subcontractor’s argument this was not a public work.
The Court also found that the subcontractor failed to serve a preliminary 20-day notice pursuant to Civil Code Section 3098 (public work), on the public agency concerned … .” (§ 3098, subd. (a), italics added.)
Make sure you know what kind of project you are working on and the applicable legal requirements to enforce your claims.
This case involved Civil Code §3252. That now has been repealed and the operable section is §9560 which is similar. Other sections discussed here as well have been renumbered under the new law. Obtain a copy of our handbook Get Paid! to find out more about the changes.
Wahid Guirguis is a Shareholder with Hunt Ortmann, a leader in California construction law. If you have any questions about this bulletin or stop notices and mechanic’s liens, please contact him at firstname.lastname@example.org.