Payment bonds on public works projects are intended to ensure payment of all debts incurred by the prime contractor, his subcontractors, and all materialmen that furnish goods or services on a public works project. Many Oklahoma vendors and contractors, however, are under the mistaken belief that only subcontractors and vendors with a direct contractual relationship with the prime contractor can recover against a payment bond issued on a public works project. In many cases this misunderstanding stems from bad information, or from advice based on prior law.
Prior to 1989, the statute creating rights against public works payment bonds made an action against such bonds to collect unpaid debts available only to subcontractors with a direct contractual relationship with the prime and to sub-subcontractors with a direct contractual relationship with a first tier subcontractor. Material and equipment vendors and lower tier subcontractors had no express recourse against the bond.
In 1989, the legislature revised the statute. This revision added material and equipment vendors to the list of those that can recover directly against the bond for goods or services furnished to a public works project. Omitted from the 1989 and subsequent revisions, however, are the lower tier sub-subcontractors (i.e. those without a direct contractual relationship with the prime or a first-tier subcontractor). Under a technical reading of the current statute, therefore, such lower tier sub-subcontractors do not have an express right of action against a public works payment bond.
Despite this technical flaw in the statute, it is relatively certain that lower tier sub-subcontractors have the same right of direct action against a public works payment bond for goods or services furnished to the project, as do first and second tier subcontractors and material and equipment vendors. As with all claims against the bond, however, the claimant must comply with the notice and claims made provisions of the statute in order to perfect their claim. Failure to do so will be fatal to any hope of recovery against the bond.
Steven K. Metcalf
This Newsletter addresses recent items of interest in various areas pertaining to the construction industry. While the Newsletter may alert you to potential problems or changes in the law, it does not attempt to offer solutions, opinions, or advice concerning specific problems. Such legal advice or opinion can only be given by an attorney after careful consideration of the facts unique to a given situation. Inquiries concerning this Newsletter or its subject matter should be directed to its contributors, Steven K. Metcalf, Esq. at (918) 430-3703 or William H. Spitler, Esq. at (918) 430-3704.