Payment Bond Defines Claimants, Deadlines

By John S. Mrowiec

Each of the states in our readership area have adopted payment bond statutes requiring prime contractors to submit labor and material payment bonds on public works projects, 30 ILCS 550/2 (Illinois Public Construction Bond Act), I.C. Section 8-23-9-9 (Indiana State Highway Contracts), I.C. Section 36-1-12-14 (Indiana Local Government, Public Construction), R.S. Mo. Section 107.170 (Bonds of Officers and Contractors for Public Works), Wis. Stat. Section 779.14 (Public Works Bond). Those statutes define a proper claimant and the deadline to sue on the bond.

The form of bond submitted by prime contractors sometimes is mandated by the contract. Other times, the surety or contractor uses a standard form. One form is the American Institute of Architects' A312 bond form.

What happens if the language of the bond provides broader coverage or a longer time to sue than does the statute? Does the claimant get the broader coverage or longer time to sue or does the statute always govern? An Illinois appellate court recently addressed that question in Carroll Seating Co. v. Verdico, 2006 Ill. App. LEXIS 1190 (1st Dist., Dec. 21, 2006).

Deadline Question

P. B. Verdico Inc. was the general contractor for renovation and construction of several school buildings for School District 87 in Berkeley, Ill.

The general contractor submitted the payment bond required by the Illinois Public Construction Bond Act, 30 ILCS 550/2, for local government public improvements. The bond was issued by Travelers Casualty and Surety Co. of America as surety. The form of the bond was the American Institute of Architects' A312 form.

The Illinois bond statute provides a time limit for suit of not "later than 6 months after acceptance by the State or political subdivision thereof of the building project or work," 30 ILCS 550/2.

The American Institute of Architects' A312 bond form has a different deadline for suit in Paragraph 11.

It provides that suit must be commenced within one year after the earlier of (1) the date the bond claimant gave notice under the Bond (and direct subcontractors need not give that notice under the language of the bond) or (2) the date on which the last labor or service was performed by anyone or the last materials or equipment were furnished by anyone under the Construction Contract.

The AIA A312 bond form's suit deadline language continues: "If the provisions of this Paragraph are void or prohibited by law, the minimum period of limitations available to sureties as a defense in that jurisdiction of the suit shall be applicable."

In Verdico, a number of subcontractors sued on the bond. One of the claimants, Carroll Seating, moved for summary judgment. The trial court granted the motion and ordered the surety to pay.

Shareholders of the general contractor had signed indemnity agreements in favor of the surety and so would owe the surety for surety's payment of the claim. Those indemnitors intervened and asked the trial court to reconsider its decision.

The intervenors argued that the claimant should not be granted summary judgment because, as to that claimant, the suit was filed more than six months after the owner accepted the project and, therefore, the suit was untimely. The intervenors contended the statute, not the language of the bond, must apply.

The trial court disagreed.

Suit Appealed


The intervenors appealed. They argued both the suit deadline Paragraph 11 in the bond and a separate Paragraph 13 which provides:

"When this Bond has been furnished to comply with a statutory or other legal requirement in the location where the construction was to be performed, any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and provisions conforming to such statutory of other legal requirement shall be deemed incorporated herein. The intent is that this Bond shall be construed as a statutory bond and not as a common law bond."

Read together, Paragraphs 11 and 13 of the bond, intervenors argued, meant the Public Construction Bond Act's claim-filing provisions always were required to apply. The Verdico appellate court held that the statute's claim-filing deadline was "not mandatory for all public works bonds for two reasons," Verdico, 2006 Ill. App. LEXIS 1190, *9.

First, where the legislature intended to mandate the inclusion of the statutory provisions into all public works bonds, it did so expressly in 30 ILCS 550/1.

However, the statute did not expressly mandate that the suit deadline be included in the bond.

Second, and more convincingly, Verdico reasoned that "this court has consistently found that due to the Bond Act's remedial nature, parties to a public works bond 'are free to contract for protection that exceeds the [Act's] minimum'" Verdico, 2006 Ill. App. LEXIS 1190, *10 (citing cases).

The claimant had submitted an affidavit regarding the date of its claimed last work. That work apparently was "warranty or remediation work" and not "substantive work." It did not qualify for "last work."

Nevertheless, the claimant had submitted an affidavit from another claimant, the mechanical subcontractor. That subcontractor had performed "balancing work" 11 months later than the other claimant's nonqualifying work. The affidavit was uncontested.

Because the bond provided that suit deadline was one year after service was performed by "anyone" "under the Construction Contract," the suit was timely for all of the claimants under Paragraph 11 of the bond, Verdico, 2006 Ill. App. LEXIS 1190, *16-17.

While the contexts have not always been that of deadline to sue on the bond, courts in our readership area beyond Illinois have held that the language of a bond given to satisfy a public construction statute's requirements may expand-but not contract-the statutory requirements for public construction bonds to the benefit of claimants. See, e.g., Dow-Par, Inc. v. The Lee Corp., 644 N.E.2d 150, 155 (Ind. Ct. App. 4th Dist. 1994); Hilton v. Universal Construction Co., 202 Mo. App. 672, 679, 216 S.W. 1034, 1037 (1919).

Thus, both those claiming and defending on public works payment bonds must read the bond to determine whether the bond has given greater rights to the claimant than the statute does.