Construction Law Blog - Liens/Bond Claims

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Posted By: Kevin Kaiser - Surety Bonds.com | May 07, 2010 | Topics: Claims, Delay Claims, Liens/Bond Claims | View Article

Construction Bonds and Surety Companies: What You Need to Know

Surety bonds are an often hidden yet critical component of doing business in a wide variety of industries. Many types of professionals are required to be bonded, including car salesmen, janitors, nursing home staff, and construction workers, and each bond’s primary focus is to protect against fraud or misconduct on the part of the bonded individual. Generally required by state, local, and federal agencies, surety bonds are in place primarily for consumer protection. If the bonded company or individual is found to be engaging in unethical or fraudulent activities, the wronged party can file a claim against the bond and receive compensation (paid for by the bonded company) up to the full face value of the bond if the claim is found to be valid. Surety bonds are exceedingly common in the construction industry and in fact, construction bonds are some of the most common surety bonds on the market today. If you’re a contractor, therefore, it’s critical that you find a bond company you trust and can rely upon to provide you good customer service when it comes to executing your bonds. Here are a few helpful tips to ensure that your choice is a good one.

• Pick an Experienced Provider. Professional surety companies with an extensive history of providing bonds can be a great partner for your business. Not only can they make the bonding process itself a smooth one with a well established underwriting routine, but they can also provide you with a great assessment of your business and its prospects. Check with the National Association of Surety Bond Producers to ensure that your potential surety company has a proven track record of success.

• Make Sure They Understand your Industry. Your surety company should have a well educated and experienced understanding of not just surety bonds, but the construction industry in general. Their awareness of the market will help determine the types of products they provide and the options they present.

• Understand the credit and underwriting process. Make sure that the underwriting standards and the credit criteria against which you will be evaluated is clear and easily understood. Your financial history is a critical component of the bonding process and it’s exceptionally important that you’re able to understand and follow the approvals process.

• Evaluate Industry Affiliations. Investigate what industry organizations and affiliations your potential surety partner maintains. The National Association of Surety Bond Producers is comprised of more than 5,000 surety agents and brokers and provides education and awareness. The Surety & Fidelity Association of America also maintains a large membership and is a well known organization in the industry.

• Go with Your Gut. Of critical importance is your own instinct. Trust yourself and, if something seems amiss, go elsewhere immediately. Surety bonds are a large investment and you need to feel that whatever company you choose is going to advocate for you and take a personal interest in your success.

This guest post was provided by Kevin Kaiser, a principal at SuretyBonds.com. AC-Lawyers in no way endorses the company but rather thought they provide relevant and useful information. If you want more information regarding surety bonds, visit their Surety Bond Education Program.

Posted By: Paul R. Cressman, Jr. | Apr 12, 2010 | Topics: Liens/Bond Claims | View Article

Important case impacting contractor lien rights

The Washington Court of Appeals held last week that a lien recorded by a lien service was invalid because it did not contain language required by statute. This case is very important for contractors and suppliers who use lien recording services to record liens on their behalf.

Posted By: John P. Ahlers | Jul 07, 2009 | Topics: Liens/Bond Claims | View Article

Contractor Prevails in Lien Claim on Leased Property (Charles and Joanne Haselwood v. Bremerton Ice Arena 2009 WL 1803272)

In 1971, the United States Secretary of Interior deeded 17.6 acres of land in downtown Bremerton to the City of Bremerton for use as a park and recreation center. The conveyance from the government prohibited the City from leasing the land except to another government agency, but did allow the City to provide recreational facilities and services by entering into private concession agreements.

In 2002, the City of Bremerton and a private entity known as the Bremerton Ice Arena, Inc. (BIA) entered into a concession agreement pursuant to which BIA received a concession to develop, construct, and operate an ice "Arena" on the 17.6 acre plot. The concession agreement specifically provided the City retained ownership of the land, that BIA could not encumber the land, that BIA would build and operate an ice arena on the property, and that after the end of the concession all improvements would revert to the City of Bremerton.

BIA investors borrowed $4 M (Haselwood's) to fund the construction of the arena. The Haselwood's loan was secured by a commercial security interest and deed of trust. The Deed of Trust was secured by the real property at the arena location, the concession agreement, and all improvements.

Before the Deed of Trust was recorded on September 13, 2002, BIA's construction manager obtained a bid from RV Associates, Inc. (RV) to perform the site work and utilities for the Project. RV mobilized equipment to the Project on September 6, 2002 and signed a contract with BIA on September 20, 2002. Haselwood's Deed of Trust was recorded on September 13, 2002 a week after RV first delivered equipment to the site.

RV performed the site work and utility work, some changes were made to the plans and specifications which RV claimed increased the cost of its work. RV was not paid $101,905.30 and recorded a mechanics lien against BIA and the Arena in July of 2003.

BIA defaulted on its promissory note to the Haselwood's in August of 2003 and Haselwood filed a complaint against BIA, RV and other creditors who had an interest in the Arena. Haselwood sought a declaration from the Court that their security interest was prior to all other liens on the property and sought a decree to foreclose on the Deed of Trust. RV's position was that it delivered equipment to the site on September 6, 2002 one week before the Haselwoods recorded their lien and thus RV had priority over the Haselwoods Deed of Trust.

RV moved for summary judgment seeking a decision from the Court that its Deed of Trust was superior to all of their claims in the property that RV's lien claim was inappropriate because the Arena was not "public property". The trial court ruled that the contractor had no claim against the concession agreement or the real property and Haselwood prevailed.

RV appealed, asserting that even though RV recorded its lien nearly 10 months after it had started work on the Project, that its lien claim related back to the first day it had performed work on the Project, and the RV's lien attached to the improvements to the real property under the concessions agreement. The Washington Supreme Court ruled that under the concessions agreement BIA could only own improvements to the land and pursuant to the Washington lien statutes RV had a lien on the improved property to the extent BIA had an interest in the improved property. Since the building on the property belong to BIA (the land belonged to the City) RV's lien claim attached to the improvements on the property (buildings and substructures). The court also ruled that RV's lien related back to the first day it had mobilized equipment to the Project even though the contract was signed after the equipment was mobilized and even though the lien claim was filed 10 months after the equipment was brought to the job. RV's lien had priority over Hazelwood's deed of trust.

To read the case click here

Posted By: Sean Russel | Feb 02, 2009 | Topics: Liens/Bond Claims | View Article

Washington's Stop Notice: An Effective Hammer in the Contractor's Tool Chest when Progress Payments are Delinquent

Reliance on the traditional mechanic's lien to recover nonpayment can be a frustrating experience for a contractor lien claimant. Often, recording and enforcing a traditional mechanic's lien turns into an expensive and time consuming process. This frustration can be especially felt with relatively small claims because the cost of recording and enforcing a lien could be in excess of the claimed amount.

Posted By: Ryan Sternoff | Jan 13, 2009 | Topics: Liens/Bond Claims, Rants and Raves | View Article

Protecting Your Company's Financial Interests During Tough Times

In today's construction market, contractors face increasing challenges thanks to a slowdown in construction projects, problems in obtaining credit, fewer investors for projects, high construction costs, and slow payment or nonpayment by clients. All of this can impact a contractor's ability to obtain payment from project owners or upper tier contractors or make payment to subcontractors and suppliers. This article is intended to provide some guidance to contractors, and specifically general contractors operating in Washington State, on how to protect their interests in dealing with owners, subcontractors and suppliers in the present market.

Posted By: Sean Russel | Sep 23, 2008 | Topics: Liens/Bond Claims | View Article

Contractors Beware: Know the Terms of Your Payment Bond

Two recent court decisions strictly interpreting language contained in the AIA A312 Payment Bond form ("the Bond") have had a significant impact on general contractors and sureties. The courts in National Union v. Bramble (FL) and J.C. Gibson v. XL Specialty (MD), strictly interpreted the requirements contained in Paragraph 6 of the Bond. Paragraph 6 creates obligations for a surety in responding to a bond claim. Specifically, Paragraph 6 requires a surety to, within 45 days of a receiving a claim, respond to the claimant stating the undisputed amounts and the basis for challenging any disputed amounts.

Posted By: Brett Hill | Jul 30, 2008 | Topics: Claims, Government Contracts, Liens/Bond Claims | View Article

Court of Appeals rules that employee trust funds cannot recover against payment bond and retainage

In an unpublished opinion, the Division II Court of Appeals ruled this month that union managed employee benefit trust funds could not recover against a general contractor's payment bond and against an owner's retained percentage for unpaid trust fund contributions. In Leo Finnegan Construction Company v. Northwest Plumbing and Pipefitting Industry, a number of union managed employee benefit trust funds ("Trusts") filed lien notices against the general contractor's, Finnegan, performance bond and retainage held by the City of Tacoma on the Tacoma Police Department project. Finnegan had subcontracted with Chapman Mechanical. Chapman was required under a collective bargaining agreement between it and the Plumbers and Pipefitters Local 26 to pay monthly employee benefit contributions to the Trusts. Chapman failed to pay the required contributions and the Trusts recorded liens against the payment bond and retainage.

Posted By: Brett Hill | Jul 08, 2008 | Topics: Claims, Liens/Bond Claims, Notice Issues | View Article

Crane subcontractor not required to give pre-lien notice on public project

The Division II Court of Appeals ruled today that a second tier subcontractor that supplied and operated cranes was not required to give a pre-lien notice for its claim against the bond and retainage on a public project.

Posted By: Brett Hill | Feb 29, 2008 | Topics: Liens/Bond Claims | View Article

Mechanic's lien filing period not tolled indefinitely when claimant joins in another foreclosure action

This week, in Van Wolvelaere v. Weathervane Window Co., the Washington Court of Appeals ruled that the 8 month statute of limitations for mechanic's liens was not tolled indefinitely after a lien claimant joins an existing lawsuit filed by another claimant to foreclose on the property at issue.

Posted By: John P. Ahlers | Feb 29, 2008 | Topics: Liens/Bond Claims | View Article

Miller Act Recovery Can Depend Upon Whether the Claimant is a “Subcontractor” or “Supplier”. (Federal Bond Claim)

The Miller Act provides recovery from the general contractor's bond for only first and second tier claimants.  A first-tier claimant is one who has a direct contract with the prime contractor, a second-tier claimant is a claimant who has a direct contract with the prime contractor's (first tier) subcontractor.  In a recent case, the Third Circuit provided some guidance as to whether a steel fabricator and supplier was a subcontractor or supplier.

Posted By: Brett Hill | Dec 28, 2007 | Topics: Liens/Bond Claims, Recent Legislation | View Article

Legislature Revises Lien Notice to Customer Requirements

Effective July 22, 2007, the Notice to Customer provided to owners by contractors required to be registered and performing work on certain specified construction projects now must be signed by the owner and retained by the contractor for three years.

Posted By: Brett Hill | Dec 28, 2007 | Topics: Damages, Liens/Bond Claims, Recent Legislation | View Article

Court of Appeals clarifies requirements to recover against lien bond

In DBM Consulting Engineers, Inc. v. U.S. Fidelity and Guar. Co., ___ Wn. App. __, ____ P.3d. ___ (2007), the Court of Appeals clarified the steps that a lien claimant must take in order to recover against a lien bond.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Damages, Liens/Bond Claims | View Article

Diamaco, Inc. v. Mettler - Prevailing party on bond and retainage claim entitled to an award of attorneys fees

In this case, the Court of Appeals held that the prevailing party in a lawsuit against a payment bond and retention is entitled to an award of its attorneys fees. However, the amount of attorney fees recoverable against the bond and retainage is in the trial court’s discretion.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Change Orders, Claims, Damages, Liens/Bond Claims | View Article

Henifin Constr. v. Keystone Constr.

General contractor is the owner’s “Construction Agent” as defined under the private lien statute and, thus, subcontractor's lien for extra work authorized only by the general contractor was valid.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Claims, Damages, Liens/Bond Claims | View Article

LRS Elec. Controls v. Hamre Constr. - Pre-Claim Notice Requirements on Public Projects

Court clarifies pre-claim notice requirements for sub-tier subcontractors on public projects. All sub-tier subcontractors must provide the pre-claim notice in order to preserve their claim against the bond and retainage for materials supplied to the project.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Liens/Bond Claims | View Article

Eng’g Group v. Ondeo Degremont

In Eng'g Group v. Ondeo Degremont, 128 Wn. App. 885, ___ P.3d ___ (August 9, 2005), the Courty of Appeals held that the prevailing party in an action involving a contractor's registration bond is entitled to an award of reasonable attorneys' fees not limited by the amount of the bond.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Damages, Liens/Bond Claims | View Article

Andriew v. Covey - Counterclaims Not Permitted in Frivolous Lien Proceeding

Washington's lien statute provides a specific frivolous lien proceeding for parties seeking to challenge a lien. In this case, the party defending its lien in the frivolous lien proceeding alleged a counterclaim, for money owed, against the party who initiated the frivolous lien proceeding. The Court of Appeals held that counterclaims were not permissible in a frivolous lien proceeding.