Progress payment requisitions signed by contractors can act as a waiver of lien and release of any and all claims against the owner. Construction contracts normally provide for progress payment applications to be accompanied by a contractor’s affidavit stating that there are no claims to the date of the application for payment, and also provide for a waiver of lien for work performed to the date of the requisition. These releases and lien waivers are problematic for contractors where the owner relies on them to reject a contractor’s legitimate claims, such as claims for changes or extra work, which arise before the releases and waivers of lien were signed. In the recent case of E-J Electric Installation Co. v. Brooklyn Historical Society, the court took up the question of the validity of the releases and waivers.

Background

E-J Electric Installation Co. contracted to perform the electrical work at the renovation of the Brooklyn Historical Society’s building for a contract price of $1,399,000.00. On September 6, 2002 the contractor submitted a claim of $1,229,674.00 in additional costs caused by the owner’s breaches of contract, delays, interference and disruptions, and inadequate contract plans and specifications.

During the course of the renovation, the contractor executed a total of 38 lien waivers and affidavits of release, which were submitted in connection with the contractor’s progress payment applications. Ten of the lien waivers and affidavits were submitted after the contractor’s September 6, 2002 notice of claim for extras. The lien waivers and affidavits stated that the contractor waived and released the owner from all claims of payment for work, labor or materials furnished to the date of the application for payment.

The contractor sued the owner for the additional costs claimed due and the owner moved for summary judgment to dismiss the claim. In support of its application for dismissal, the owner argued that the contractor expressly waived any right to payment pursuant to the clear wording contained in the waivers of lien and affidavits.

In contesting the owner’s summary judgment motion, the contractor argued that the parties’ course of dealing and intent as to the waivers of lien and affidavits were controlling, not the language contained in the waivers and affidavits.

The trial court denied the owner’s motion for dismissal and directed that discovery proceedings be conducted regarding the parties’ course of dealing and intent as to the waivers of lien and affidavits. The owner appealed.

Decision

The appellate court affirmed the lower court’s decision. It held that the contractor raised a triable issue of fact as to what the parties intended by the waivers of lien and affidavits and as to their course of conduct during the ongoing renovation while the owner was making progress payments. According to the court, “where a waiver purports to acknowledge that no further payments are owed, but the parties conduct indicates otherwise, the instrument will not be construed as a release.”

The owner’s conduct in subsequently paying the contractor for work theoretically released by prior payments may reasonably be considered by the court as completely inconsistent with the owner’s theory of a general release. For example, the court pointed out that the owner, after making an initial payment on a certain part of the contractor’s work and receiving an executed “Waiver of Lien to Date” with respect to the work performed, made subsequent payments pursuant to the same “Application for Payment for Work.”

The court also held that where the terms of the waiver and the contract between the parties expressly provide for partial payments upon execution of the waiver, a course of conduct between the parties may establish that “the waiver form is construed as merely a receipt for the monies referenced in the waiver.”

Comment

As a general principle, courts will rely on the express language of executed waivers and releases to bar claims for additional payments. This case demonstrates, however, that if the parties act in a manner inconsistent with the theory of a release of claims, the waiver will not be construed as a general release.

Here, after the owner made payments on certain requisitions and receiving lien waivers and executed affidavits of release for the work covered under the requisitions, the owner made subsequent payments pursuant to the same requisitions. This course of conduct by the owner is inconsistent with the lien waivers, which expressly acknowledge that there are no liens or existing claims. Consequently, a trial is required to determine the parties’ conduct and intent as to the lien waivers and affidavits of release.

Contractors are sometimes forced into a difficult position where they are required to execute a lien waiver and affidavit of release as a condition of a progress payment to them. They must guard against executing progress payment documents that may release the owner from its contractual obligations to pay contractors the money they are rightfully owed. Under the circumstances of this case, the contractor was able to raise a triable issue as to whether a waiver and affidavit form could be construed as merely a receipt for the monies referenced in the waiver and not a release, where the parties dealings indicated that a waiver and release was not intended.

Summary judgment allows a party to obtain a judgment from the court on a claim without the necessity of a trial. A summary judgment motion is quite attractive to litigants, since a successful motion allows the moving party to save the time and expense associated with a trial.

While summary judgment is a useful tool, not only for obtaining a judgment, but also for narrowing the issues in a case, it is also viewed by the courts as a drastic remedy. A court will grant a motion for summary judgment only if the moving party can establish that no material facts are in dispute.

As demonstrated in the recent case of Techcon Contracting, Inc. v. Incorporated Village of Lynbrook, the moving party carries a heavy burden when attempting to show that there are no factual disputes for a judge or a jury to decide at trial.

Background

Techcon Contracting, Inc., a general contractor, entered into a public construction contract with the Village of Lynbrook to perform certain roadway improvements. Techcon later entered into a subcontract with Lizza & Sons Paving, Inc. to perform grading and paving work at the project.

After having performed work at the project without receiving payment from Techcon, Lizza was forced to suspend its work in July 2002. In October 2002, Lizza sent an invoice to Techcon requesting payment for the work it performed at the project. Techcon never contested or paid the invoice.

Lizza sued Techcon for the monies it claimed were owed and moved for summary judgment. In support of its motion for summary judgment, Lizza submitted an affidavit from Lynbrook’s Superintendent of Public Works, stating that Lynbrook had no problems with the materials Lizza provided or the work Lizza performed. Lynbrook’s Superintendent also stated that Lizza’s work was performed in a timely and professional manner.

In contesting Lizza’s summary judgment motion, Techcon pointed to numerous problems it had with Lizza, including Lizza’s failure to submit certified payrolls for work performed in July, Lizza’s pushing of sub-base material into a manhole, which clogged a sewer, and Lizza’s failure to install the contractually specified high density, stress relief interlayer crack tape.

Decision

The Court ruled in favor of Techcon, denying Lizza’s motion for summary judgment. In doing so, the Court looked no further than to the language of the subcontract. The Court noted that the subcontract had three conditions for Lizza to receive payment: (1.) That all work was performed in accordance with the contract documents, plans and specifications provided to Techcon by Lynbrook and the project engineer, Cameron Engineering; (2.) That all work be approved by Cameron Engineering; and (3.) That agreed upon unit prices would be paid for quantities measured and approved by Cameron. The Court held that Lizza failed to meet any of these criteria.

In relying upon and quoting previous judicial opinions, the Court stated that a “contract will be interpreted in accordance with the intent of the parties as expressed in the language of the agreement” and “the terms of an agreement are to be interpreted in accordance with their plain meaning.” Since the affidavit from Lynbrook’s Superintendent of Public Works failed to establish any of the three conditions required for Lizza to receive payment, Lizza’s reliance on the affidavit was misplaced. According to the Court, even though the affidavit stated that Lizza’s work was performed in a timely and professional manner, that was not all the contract required.

Given that Lizza’s motion was for summary judgment, the Court could not grant the motion unless there were no material facts in dispute. Since each of the above prerequisites for payment were disputed, the Court was compelled to deny Lizza’s motion.

Comment

Courts will strictly construe the terms of the parties’ agreement. This means that the courts will make certain that there has been strict compliance with the specific terms and conditions required by the agreement. Here, Lizza’s motion for summary judgment was denied because it was disputed whether Lizza fully performed pursuant to the express terms and conditions of the parties’ agreement. Disputed issues of material fact will time and again bar the grant of summary judgment.

Public bidding laws serve a dual purpose. The primary purpose is to benefit the public by enabling municipalities, public agencies or public authorities to obtain the best price for public improvement contracts through competitive bidding. The secondary purpose is to insure that contractors bidding on public projects are on an equal footing in competitive bidding. Actions or omissions which would place certain bidders at a disadvantage are to be avoided.

As a general rule, bidders must comply with the bid specifications. Public agencies may reject bids that fail to comply with the literal requirements of the bid specifications, such as the requirements for bid bonds or other collateral, pre-qualification of the bidder, or the timeliness of the bid. When a contractor who submits the lowest bid, and who is otherwise qualified to perform the contract, has failed to comply with technical requirements of the bid specifications, the public agency must balance the two purposes of the bidding laws. If the municipality rejects the low bid because of the non-compliance, the public may lose the benefit of the lower bid. If the municipality waives the non-compliance, it may be giving an advantage to the low bidder not enjoyed by the other bidders.

The dilemma faced by the public agency when it receives a bid that does not fully comply with the requirements of bid specifications is whether to reject the bid on the ground that the non-compliance is material or to accept the bid for the reason that the defect is a mere irregularity. As long as there is a rational basis for the public agency’s actions, courts almost invariably uphold the decision, provided that the decision is in the public interest and does not place other bidders at a competitive disadvantage.

In Matter of Arcon Construction & Management Services, Inc. v. County of Saratoga, Arcon Construction sought to annul a contract awarded by the County of Saratoga to Gross Electric, Inc. based on the County’s alleged violation of State competitive bidding laws.

Background

Both Arcon Construction and Gross Electric bid on electrical construction work at a water supply project. A preprinted bid form in the County’s bid package required the bidder to submit an amount on seven lines relating to various components of the work to be performed. An eighth line on the bid form contained a pre-printed “contingencies” amount of $300,000.00. The eight entries were then to be totaled and the resultant sum entered as the base bid.
According to Gross, it sent a representative to the bid opening with a bid form that was only partially completed; that is, without an entry on line 3, and the total base bid line left blank. Prior to the bid deadline, Gross instructed the representative to enter the amount of $1,533,000.00 on line 3, and the amount of $3,974,000.00 as the total base bid. However, the $3,974,000.00 was only the sum of lines 1 through 7; it did not include the $300,000.00 contingency preprinted on line 8.

Rather than reject Gross’ bid based on the discrepancy, the County recalculated the bid based on what appeared to be an obvious mathematical error on Gross’ part, added the $300,000.00 contingency amount to the base bid amount of $3,974,000.00, making $4,274,000.00 the total base bid. This bid amount made Gross the second lowest bidder behind Arcon, who placed a bid at $4,249,300.00.

Prior to award of the contract to Arcon, Gross was notified that it was the second lowest bidder. In a letter to the County, Gross’ president stated that the $300,000.00 contingency had been included in the $1,533,000.00 placed on line 3, and that Gross’ bid was actually the $3,974,000.00 listed as the total base bid. Accepting Gross’ explanation at face value, the County decided that Gross, and not Arcon Construction, was the lowest bidder and awarded the contract to Gross.

Arcon set forth several arguments in an effort to have the contract annulled. As an initial point, Arcon noted that the language of the bid documents prohibited Gross from explaining its bid after opening of the bid. Arcon also argued that Gross, at best, was opportunistic and disingenuous in its after-the-fact explanation that the amount of the mandatory contingency fee was included in its line 3 entry, and at worst, intentionally designed its bid to give it an unfair advantage over other bidders. Finally, Arcon argued that the County’s communications with Gross, at a time when Gross appeared to be the second lowest bidder, were improper.

Decision

The Trial Court sided with the County, rejecting Arcon’s arguments and denying Arcon’s request to annul the contract. In doing so, the Court noted that a municipality may waive technical noncompliance with bid specifications if the defect is a mere irregularity or clerical mistake and it is in the best interests of a municipality to do so. As long as the County’s decision to waive the prohibition against explaining bids after the opening was rational, the Court stated that such a determination must be upheld. The Court held that the County’s decision to award the contract to Gross based on Gross’ post bid explanation, even though unsubstantiated by documentary evidence, was not irrational as a matter of law. The Court also noted that the burden was on Arcon to prove that the County improperly awarded the contract to Gross. With the evidence before it, the Court lacked sufficient proof to find that Gross designed its bid in such a way as to gain an unfair advantage over the other bidders. The Court also held that there was insufficient proof to hold that the County’s post bid communication with Gross constituted a post bid, pre-award, negotiation which tainted the bidding process to an extent that would warrant setting aside the contract award.

Comment

Where technical noncompliance with bid specifications exists, a municipality is vested with a great deal of discretion when determining what constitutes a mere irregularity. For the determination to withstand judicial challenge, only a rational basis for the decision must be shown. When the determination is coupled with the motivation to save taxpayer dollars, the decision by a municipality will rarely be overturned by the judicial system.

Of the many problems that contractors must struggle with, probably none are adownsmore common than change orders and extra work. Most construction contracts require a written authorization for change orders and extra work. Courts generally hold that a contractor who fails to obtain a written change order will not be paid for that work.

In the recent case of Charles T. Driscoll Masonry Reconstruction Company v. County of Ulster, the appellate court addressed a claim for work performed where there were no written change orders.

Background

Charles T. Driscoll Masonry Reconstruction Company was awarded a contract by the County of Ulster for the completion of specified work, including window installation, sealant replacement, and External Foam Insulation System (“EFIS”) repair and painting. The contract specifically called for written change orders authorizing the work. Shortly after Driscoll began the work, the County complained of a lack of uniformity in the application of the sealant over the EFIS control joints. After several meetings to address this and other issues, it was verbally agreed that the contractor would perform a sample application using a different sealant and technique to accomplish the aesthetic qualities desired by the County. Though the County accepted the new sealant, it again complained about the manner in which the sealant was being applied by Driscoll. After the contractor twice recaulked the building in an attempt to alleviate the County’s concerns, the County informed Driscoll that it was terminating the contract.

Upon failing to receive payment for the amount claimed due, the contractor commenced an action seeking payment under the parties’ contract. Following a trial, the court found that the County breached the contract by wrongfully terminating Driscoll. The court also held that the contractor completed 80% of the work required under the contract, which was valued at $67,716.00, and that Driscoll was owed $34,860.00 for additional work performed at the County’s request.

The County appealed, arguing that the contract’s specific requirement for the use of written change orders precluded the award of damages beyond the contract price and any written change order work. The contractor argued that the County waived the requirement of a written change order by verbally agreeing that the recaulking should be performed.

Decision

The appellate court ruled in favor of the County. The court held that although clauses requiring a written change order can be waived by the parties, the clause was not waived in this instance. To waive the clause, the court stated that the conduct of the parties must demonstrate an indisputable mutual departure from the written agreement, that the changes were clearly requested by the County, and completed by the contractor. Here, the court stated that Driscoll was simply repeating work contemplated by the contract in an effort to satisfy the County’s complaints with the quality of the contractor’s work. The court was unwilling to find waiver where there was no evidence that the County intended to compensate Driscoll for the extra work performed, even though there was a need for the work.

The court also relied heavily on the fact that during the same time period, the contractor obtained at least two written change orders authorizing additional masonry and joint repair. According to the court, the written change orders demonstrated a continued intent by the parties to require that contract changes be in writing.

Comment

When the contract requires changes and extras to be in writing, courts generally hold that a contractor who fails to obtain a written change order will not be paid for that work. The prudent contractor should obtain a written order in the form specified by the contract prior to performing the changes or extra work. As shown in this case, the failure to do so can result in a contractor’s failure to recover for the changes and extra work performed.

Construction contracts often contain a provision which makes the contractor an indemnitor for personal injury or property damage claims arising out of the work performed under the contract. Apart from indemnity clauses, construction contracts often contain a provision obligating the contractor to obtain insurance naming the owner as an additional insured under the contractor’s insurance policy. The enforcement of both provisions was addressed in the recent case of Trano v. Federated Department Stores, Inc.

Background

Douglastown Plaza Shopping Center, LLC, entered into two agreements with 4 Star Contracting, Inc., under the terms of which 4 Star was to remove, replace and cover all expansion joints on the sidewalk of a shopping center. Approximately one month after 4 Star last performed work at the project, Ms. Trano tripped and fell on an expansion joint, sustaining injury. She sued the owners of the shopping center, claiming that the defective expansion joint caused the accident because it was two to three inches above the level of the sidewalk.

The agreements between Douglastown and 4 Star contained an indemnification clause whereby the contractor agreed to indemnify the owner from all claims for personal injury and property damage “alleged to arise out of” the work performed under the agreements. The two agreements also contained a provision whereby 4 Star guaranteed the materials and workmanship to be free from defects for a one-year period, running from final completion.

Based on the indemnification provision, the owners of the shopping center demanded that 4 Star indemnify them for the costs incurred in defending the personal injury action. When 4 Star refused, the owners sued the contractor, requesting that the Court enforce the terms of the indemnification provisions contained in the agreements. The owners also sued 4 Star for breach of contract for its failure to procure insurance naming the owners as additional insureds, as was required by the agreements.

The contractor argued in its defense that even if the expansion joint was somehow defective, the duty to maintain the joint fell squarely on the owner of the property and not 4 Star, which had been off the job site for at least one month prior to the accident.

Decision

The trial court ruled in favor of the shopping center owners’ claim for contractual indemnification and for breach of contract based on 4 Star’s failure to obtain insurance protecting the owners. The court held that because the injury occurred within the one year guaranty of work and materials period, coupled with the plain contract language obligating 4 Star to indemnify the owner, the contractor was liable to the owners for the costs incurred in defending the personal injury action. Equally important, the Court also found 4 Star in breach of contract for its failure to provide an insurance policy naming the owners as additional insureds.

Comment

Though the Court relied on the one-year guaranty of work provision in rendering its decision, it is probable that even absent the guaranty, the Court would have enforced the indemnification agreement against 4 Star. This is because Ms. Trano claimed that the injury “arose out of” uneven expansion joints in the sidewalk. The contractor had performed work on the expansion joints up to one month before plaintiff’s fall. As to indemnification for costs incurred in defending the personal injury action, it is immaterial whether 4 Star’s work actually caused the trip and fall accident. What mattered was what Ms. Trano alleged in her lawsuit. Since she alleged that her injury arose out of 4 Star’s work, the contractor was required to indemnify the property owners.

As illustrated time and again, parties to a construction contract must carefully review the terms of the contract so that they fully understand their respective rights and responsibilities.

Imagine that one of your laborers is dead as the result of being struck by an excavator bucket in a trench, and that a compliance officer has cited your company for a “Serious” violation of OSHA’s General Duty Clause, ¬ß 5(a)(1).

Panic in such a situation has kept more than one employer from even calling his lawyer. The danger is seeing OSHA proceedings as a deck stacked against the employer where a fatality is involved; taking it as a given that the defense of the wrongful death lawsuit will be complicated by an adverse OSHA finding; and giving up on the OSHA citation from the outset (especially if your liability coverage won’t defray legal fees spent in defending the OSHA citation).

Anytime you are cited for an alleged OSHA violation classified as “Serious,” “Repeat,” of “Willful,” you should promptly contact an attorney experienced in OSHA representation.

Every citation gives you the opportunity to focus on your company’s safety program. Regardless of whether the citation can be successfully defended (or downgraded through negotiation) it provides the occasion to identify and to implement measures to better protect your employees and your business.

And, whatever the immediate outcome, an OSHA citation is a challenge to you to demonstrate, both to your workforce and to local OSHA personnel, that you are a safety-conscious employer. “If you’re going somewhere,” the adage goes, “you’re going to get some mud on your shoes.” That is, if you remain in business, and your company grows and takes on bigger projects, you will probably receive more, and not less, attention from OSHA. Life has, let us hope, pleasures greater than visits from government agents to enforce laws that cost you money. However, just as there is some small satisfaction in moving into a higher tax bracket (and since, in your heart, you believe your workers deserve a safe workplace) you should strive to put a cheerier and more enlightened “spin” on your increased business with OSHA, and to view it is a badge of your success.

Keep in mind that many OSHA cases that look terrible at first can be successfully defended, and it’s uncommon that solid legal representation cannot at least reduce the bad consequences to your business. It’s upsetting, naturally, to get a citation (especially when the citation follows the occurrence of a fatality or serious injury) but don’t assume OSHA is a rampaging bunch of zealots out to punish employers. The statute, the agency, and the enforcement and adjudicatory procedures aren’t perfect, but such is the human condition. OSHA has markedly improved workplace health and safety. The regulations (as well as OSHA enforcement personnel) are generally rational and comprehensible. Adjudicative hearings, although under Department of Labor auspices, are not a “Kangaroo Court.” Procedures are streamlined, but not unreasonably so. And the ALJs, even in cases involving serious injuries or death, are not in the business of trampling on the law, to punish the employer.

While fatalities nearly always trigger an inspection, it is the exposure of employees to unsafe or unhealthful conditions — not the occurrence or severity of actual harm, that constitutes the violation.

Secretary v. Mario Sinacola & Sons Excavating, Inc. illustrates that even seemingly tough cases can be won. That case presented the scenario described at the head of this article. A 3-man crew was installing a water line in a trench. Martinez, one of two pipe layers, was acting as signal man for the excavator operator, Ruiz-Hinojosa, whose limited visibility did not allow him to see that section of the trench where the pipes were to be fitted together. When a section of pipe was lowered into the trench, Martinez signed Ruiz-Hinojosa to stop, and walked under the excavator bucket to the opposite (north) side of the excavator, to assist the second laborer in joining the new section of pipe to the previously installed section.

A foreman, Harig, came to the south end of the excavator and, seeing that Martinez and the other laborer had the two pipe sections lined up, on Martinez’s signal (Martinez remaining out of Ruiz-Hinojosa’s sight, in the trench’s north end) signaled to the operator to move the bucket northward, to drive the new pipe into the joint. When that had been accomplished, Harig turned his attention to a different crew. Ruiz-Hinojosa moved the bucket back slightly, to take tension off the chain.

Unfortunately, as he did so, Martinez (still invisible to Ruiz-Hinojosa, as he tried to step around the bucket to regain his previous position) was struck by the bucket, and sustained fatal injuries.

The employer was cited under OSHA’s General Duty Clause, which violation comprises five elements. They are:

• A hazardous workplace condition or activity;
  
• That the hazard be recognized, whether by the industry in general, or by the cited employer;
  
• That the hazard be likely to cause death or serious physical harm;
  
• That the employer knew, or with the exercise of reasonable diligence could have known, of the violation;
• That there existed feasible means to eliminate or materially reduce the hazard.

Thus, the Secretary’s case required, among other things, that she articulate practicable means to abate those hazards that go along with having, in a confined space, workers on foot, an excavator with a movable boom and a heavy bucket, and an operating engineer with restricted visibility.

The Secretary’s burden is not met by “abatement measures” that — even if they appear plausible at first — on examination prove to be insubstantial. In Sinacola & Sons, for example, the citation listed the following:

• “Develop and implement procedures to ensure that all personnel working near moving equipment are accounted for and . . . a safe distance away” before allowing the machine to be moved;
  
• A “written hazard analysis” relating to the installation of pipes/utilities in trenches;
  
• Developing methods to allow employees “to remain in constant contact with one another during the installation of underground utilities,” especially “where visual and oral communication is difficult and/or obsolete;”
  
• The appointment of a safety monitor/signalman during underground installations; and
  
• Development of a system of signals understood by all, the use of only one signalman at a time, and a formalized system to ensure that all are aware where responsibility is passed from one signalman to another.

Of the five abatement measures included in the citation, the Secretary dropped all but the first and last shown of them prior to the trial. And, as the ALJ rightly detected, “the first abatement method merely restates the recognized hazard, and suggests that [the employer] develop and implement additional procedures to eliminate it.” It is the Secretary’s obligation, if she is to sustain a General Duty Clause citation, not merely to command that the employer develop new procedures, but to indicate measures the employer ought to have employed, which precautions are recognized by knowledgeable persons in the industry as “necessary and valuable.”

As for the last-mentioned proposal concerning a single signalman, the operating engineer was trained to receive hand signals, signalmen were utilized, and the operator received hand signals from only one signalman at a time. There was no evidence, the ALJ found, “that a reasonable employer familiar with the conditions on Sinacola’s work site would have found these safety precautions inadequate.” Because the Secretary failed to propose a feasible means of abating the cited hazard, the General Duty Clause violation was vacated, and the citation dismissed.

Obviously, the employer’s win in this contested matter neither diminished the gravity of the loss of life, nor guaranteed a favorable outcome in a wrongful death action by survivors of the deceased employee. Nevertheless, the employer’s prospects in such an action were certainly not damaged by the outcome and, more generally, the same demonstrates that injuries, even fatal ones, do not constitute an OSHA violation, and citations related to tragic occurrences can often be successfully defended.

Thomas H. Welby is a licensed professional engineer, as well as an attorney with more than 20 years’ experience, and managing partner of Welby, Brady & Greenblatt, LLP, a construction law firm with its main office in White Plains. Articles in this series are for general guidance only, and should not be relied upon as providing all information necessary for compliance with OSHA and other legal requirements.

In the construction industry, labor and material payment bonds are normally required to be furnished on public projects. Some private owners, particularly on large or institutional projects, may also require contractors to furnish payment bonds.

The primary purpose of a payment bond is to protect subcontractors, materialmen and laborers against the default of contractors. When the principal on the bond does not pay, the surety company can be forced to pay if the bond claimant has complied with the terms and conditions of the bond. Should a bond claimant fail to comply with these special terms and conditions, the surety will have no obligation to make payment, even if payment is otherwise due and owing from the surety’s principal.

The terms of the bond will normally determine: (1) who may make a claim; (2) what material and labor is covered by the bond; (3) when and to whom notice of the claim must be given; (4) when suit must be commenced; and (5) where suit must be commenced.

The recent New York case of Techcon Contracting, Inc. v. Incorporated Village of Lynbrook underscores the importance of reading the terms of the bond, and strictly complying with the special conditions set forth in the bond.

Background

Techcon Contracting, Inc., a general contractor, entered into a public construction contract with the Village of Lynbrook to perform certain roadway improvements. Lincoln General Insurance Company, as surety, issued a payment bond for the work relating to the project, naming Techcon as its principal under the bond. Techcon later entered into a subcontract with Lizza & Sons Paving, Inc. to perform grading and paving work at the project.

After having performed work at the project without receiving payment from Techcon, Lizza was forced to suspend its work on July 31, 2002. Techcon later defaulted on its contract with the Village of Lynbrook and was terminated on September 23, 2002.

Pursuant to the terms of the payment bond issued by Lincoln General, all actions to recover on the bond were required to be commenced within one year of Techon’s last day of work at the project.

On May 25, 2004 Lizza Paving commenced an action on the payment bond, seeking to recover the money due it from Techcon. The surety moved for summary judgment dismissing the action of Lizza Paving, arguing that the action was time barred. According to the surety, the bond contained a one year limitation period running from the date upon which Techcon ceased work on the project. Techcon was terminated by Lynbrook on September 23, 2002. Under the time limitation provision of the bond, Lizza Paving would have had to commence its action by September 23, 2003. Since Lizza Paving did not commence its action until May 25, 2004, the surety argued that the action was time barred.

In contesting the surety’s motion for summary judgment, Lizza argued that statutory law applicable to public construction projects established the applicable time period within which to commence an action, not the language of the bond. State Finance Law section 137 provides for one year from the date on which final payment was due to commence an action on the payment bond. According to Lizza, since that date was disputed, the surety’s motion should be denied.

Decision

The trial court ruled in favor of the surety, granting summary judgment dismissing the claim of Lizza Paving. In doing so, the Court looked no further than to the language of the payment bond. It held that Lizza’s failure to commence an action within one year of the September 23, 2002 termination of Techcon was fatal to Lizza’s claim under the payment bond. The court held that the one year time limitation requirement was a precondition to recovery under the bond, and because Lizza failed to meet that condition precedent, its claim was lost.

Comment

This case is interesting because the court permitted the bond to shorten the time period otherwise established by New York’s State Finance Law on municipal public works projects. Only time will tell whether this case will withstand appellate review.

What is certain however, is that courts time and again strictly construe the terms of a payment bonds. This means that the courts will make certain that there has been strict compliance with the specific conditions of the bond. The bond claimant should be concerned with two time requirements under the payment bond. These requirements are first, the time within which notice, if any, must be given to preserve bond rights, and second, the time within which suit must be brought against the bonding company.

The unpaid claimant, or potential claimant, should make every effort to obtain a copy of the payment bond and become thoroughly familiar with its requirements. When dealing with an insolvent principal, the bond may provide the only opportunity to recover payment for work performed or materials furnished. If the terms of the bond are not complied with, the claim will be lost. The surety will only pay if the specific conditions of the bond are first satisfied.