State Finance Law §137, modeled after the federal Miller Act, the father of all public project-bonding statutes, requires general contractors on most public works projects to purchase payment bonds. Unlike a construction performance bond, which guarantees that construction work will be completed as per the terms of the contract, a construction payment bond is meant to protect an owner against claims made by subcontractors and suppliers and many others who provide work to a construction project. State Finance Law §137 requires payment bonds and therefore provides another avenue of recovery for subcontractors and suppliers for nonpayment by a general contractor or developer.
A payment bond is required for any public construction project that in the aggregate, exceeds $100,000, but only if those projects are not subject to New York’s Wicks Law.
State Finance Law §137 provides that an eligible party may bring a claim against the bond once 90 days have elapsed since the last furnishing of labor or materials and no payment has been received. Those subcontractors and suppliers that have a direct contract with a principal of a bond are not required to submit a written notice, but it is recommended. However, second tier claimants must submit a written notice within 120 days of its last provision of labor or materials or when such second tier claimant would be “entitled” to payment under its contract.
The Notice of Claim must accurately state the name of the entity for which the work was performed or provided materials to and must also identify the amount due with substantial accuracy. The Notice of Claim must be served by registered mail or personally served on the contractor at the place where it maintains an office or conducts its business or at its residence. The surety is not required to be served, but it is prudent to do so as it issued the payment bond. Once a written Notice of Claim has been submitted (if required) and payment is still not forthcoming, a lawsuit may be filed against the surety and/or contractor that issued the bond. Venue is in the county in which the contract of the contractor who furnished the bond was performed.
The Court, in its discretion, may also award attorney fees to the prevailing party. The fees should be covered by the bond if it is determined that the original claim or the defense to the claim was without substantial basis in law or fact. Notwithstanding this provision, it is extremely unusual for a court to grant legal fees under State Finance Law §137.
An action against a payment bond must be commenced within one year from the time that the “entire contract work has been completed and accepted” by the public entity. It should be noted, however, that State Finance Law §137 will not override an enforceable pre-existing bond provision regarding the statute of limitations to bring a claim. For instance, if a bond provided on a public project includes a two-year statute of limitations, that two-year period prevails. It is thus imperative that the bond itself be evaluated before any action is undertaken.
State Finance Law §137 is strictly construed and non-compliance with the requirements can lead to rejection of the claim. It is therefore advisable to consult an attorney specializing in construction law in order to protect your rights under the bond.\
This article has been authored by Donna Mulato, a law student extern at Farrell Fritz, PC, edited by Jason Samuels.