June 2009

In this edition of Law and Mortar, the construction industry newsletter from Venzie, Phillips & Warshawer, we discuss the timing and procedures for making payment bond claims in Pennsylvania, New Jersey and Delaware.

Our newsletter is intended to be a source of information relating to the management of construction contracts, risks and business practices for our clients, friends and others doing business in the construction industry. Please note the disclaimer below regarding the general content of this newsletter.

Like mechanics' liens, payment bonds are another avenue for securing payment. However, contractors, subcontractors and suppliers must act expeditiously to preserve their bond rights.


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In our last newsletter, we set forth the actions that a contractor and subcontractor must take to preserve their mechanics' lien rights.  In this issue we are focusing on the steps a subcontractor must take to preserve its rights to recover on a payment bond. 

Pennsylvania – Public Projects

  • A 1st-tier subcontractor (one which has a subcontract directly with a prime contractor who gave a bond) must wait 90 days after the day on which it last performed labor or furnished material before it can commence a lawsuit against the prime contractor’s surety on the payment bond.  1st-tier subcontractors are not required to give notice to the prime contractor of a claim against the bond.

  • A 2nd-tier subcontractor (one which has a subcontract directly with any subcontractor of the prime contractor who gave a bond) must give written notice to the prime contractor within 90 days from the date it last performed labor or furnished material stating the amount claimed and the name of the person for whom the work was performed.  The notice should be served upon the prime contractor by registered or certified mail, postage prepaid.

  • Like a 1st-tier subcontractor, a 2nd-tier subcontractor must wait 90 days after the day on which it last performed labor or furnished material before it can commence a lawsuit against the surety on the prime contractor’s payment bond.

  • The contractor must provide a copy of the payment bond and the contract for which such bond was given upon application from the subcontractor.

New Jersey - Public Projects

  • 1st-tier and 2nd-tier subcontractors and material suppliers must commence a lawsuit against the prime contractor’s surety on the payment bond within one year from the last date that they performed work or supplied materials.

  • 1st-tier and 2nd-tier subcontractors and material suppliers must provide the surety and prime contractor with a written statement of the amount claimed to be due at least 90 days before commencing any lawsuit.  This means that subcontractors and material suppliers must give written notice to the surety and prime contractor within 9 months of the last date that they performed work was performed or supplied materials.

  • Prior to commencing any work, 2nd-tier subcontractors and material suppliers must provide written notice to the prime contractor that they are a beneficiary under the bond.  Such notice must be sent by certified mail or by other means provided there is proof of delivery. 

  • A copy of the payment bond is required to be held by the owner's agent for the use of any beneficiary thereof.

Delaware - Public Projects

  • Only 1st-tier subcontractors have bond rights under Delaware law, however, the language of the bond itself may allow lower tier subcontractors and suppliers to make a claim on the bond.

  • Unless the bond states otherwise, 1st-tier subcontractors must commence a lawsuit against the prime contractor’s surety on the payment bond within three years of the date the last work was done on the contract.  However, the bond may require subcontractors to commence a lawsuit against the surety on the payment bond within 1 year of the date the prime contractor ceased work on the Project.

Pennsylvania, New Jersey and Delaware - Private Projects

  • On private projects, the language of the bond usually dictates when a claimant must commence legal action against the surety on the bond.  The bond may also dictate whether prior notice is required, the manner in which notice must be given, to whom notice must be given, and the time period for giving notice.

  • In Pennsylvania, unless the bond contains a provision that allows a claimant a longer period of time to sue on the bond, claimants must  commence a lawsuit against the surety on the payment bond within one year.  The bond may also define the circumstances for when a claim on the bond “accrues” and when the time period for commencing suit begins to run.

  • It is advisable to seek legal consultation on issues relative to the statute of limitations for commencing legal action on bonds issued in connection with private projects. The question of when the cause of action on a bond has or will accrue typically requires an analysis of the facts of the particular case and the specific language of the bond.

On private projects in particular, it is crucial to request a copy of the payment bond as soon as a payment dispute develops. Review the notice requirements of the bond and the time period for commencing suit on the bond. Be sure to strictly follow all notice requirements and contact a lawyer within the time period for commencing suit on the bond.


VP&W Bulletin Board

1. Howard D. Venzie, Jr. has been named a national 2009 Super Lawyer in the categories of Construction/Surety Law and Alternative Dispute Resolution and will be featured in the September 2009 Super Lawyers, Corporate Counsel Edition.

2. Howard D. Venzie, Jr. was also named as a 2009 Pennsylvania Super Lawyer in the categories of Construction/Surety Law and and Alternative Dispute Resolution and is featured in the 2009 issue of Pennsylvania Super Lawyers and in Philadelphia magazine's June 2009 issue.

3. Howard D. Venzie, Jr. has also been named one of Philadelphia's Best Lawyers in the category of Alternative Dispute Resolution in the 2009 edition of Philadelphia's Best Lawyers.

4. Howard D. Venzie, Jr. has also been named one of the Best Lawyers in America in the categories of Alternative Dispute Resolution and Construction Law in the 2009 edition of The Best Lawyers in America. This is the fourth year in a row that Mr. Venzie has been named in the peer review publication.

5. Sam L. Warshawer was named as a 2009 Pennsylvania Super Lawyer in the categories of Construction Litigation and Construction/Surety Law and is featured in the 2009 issue of Pennsylvania Super Lawyers and in Philadelphia magazine's June 2009 issue.

6. Bruce L. Phillips was named as a 2009 Pennsylvania Super Lawyer in the categories of Construction Litigation and Construction/Surety Law and is featured in the 2009 issue of Pennsylvania Super Lawyers and in Philadelphia magazine's June 2009 issue.

   

Venzie, Phillips and Warshawer is a proud member of the following industry associations:

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An E-Newsletter From
Venzie, Phillips & Warshawer
For the Construction Industry

Editors

 Jeffrey C. Venzie, Esq.
 Stephen A. Venzie, Esq.
 Howard D. Venzie, Jr., Esq.

Do You Want to Learn
More?

As a further service to our clients and friends, we offer seminars, in-house training programs and counseling workshops specifically developed to fit your most immediate business practice needs. Please don’t hesitate to inquire further by contacting our office manager, Florence Anderson.

For additional publications by our attorneys and other construction industry resources visit our website at www.venzie.com

Venzie, Phillips & Warshawer is a law firm located in Philadelphia, Pennsylvania serving all facets of the construction and surety bond industries since 1975. The firm engages in both the prosecution and defense of construction contract and other commercial litigation before the state and federal courts in the Commonwealth of Pennsylvania and the State of New Jersey, as well as those of other jurisdictions, and has substantial experience in the arbitration and mediation of construction industry claims and disputes before the American Arbitration Association and in the settlement of such claims and disputes through various forms of Alternative Dispute Resolution.

Recent Headlines

Bruce L. Phillips recently represented a Northeastern Pennsylvania site work/utility contractor in the successful prosecution of a claim for payment for rock excavation. The case was tried to the Luzerne County Court of Common Pleas and resulted in a judgment in favor of the contractor and against the Luzerne County Flood Protection Authority. One of the central issues in the case was whether the Authority’s independent, consulting “ENGINEER” could be considered the “Owner’s Representative” for all purposes having to do with administration of the contract during construction, particularly with regard to giving notice to the contractor that the owner was claiming for an adjustment of the unit price for rock excavation. The court rejected the arguments of both the “ENGINEER” and the Authority, and agreed with Mr. Phillips' argument on behalf of the contractor that the “ENGINEER” was not the “Owner’s Representative” for purposes of giving notice of a claim.

For more information, please email Bruce L. Phillips, Esq. at bphillips@venzie.com or Stephen A. Venzie, Esq. at svenzie@venzie.com

Venzie, Phillips & Warshawer, P.C., 2032 Chancellor Street, Philadelphia, PA 19103
Tel: (215) 567-3322 / Fax: (215) 864-9292 / www.venzie.com

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