California Civil Code 3249, states, “Suit against the surety or sureties on the payment bond my be brought by an claimant or his assigns at any time after the claimant has furnished the last of the labor or material, or both, but must be commenced beforethe expiration of six months after the the period in which stop notices may be filed as provided in Section 3184.
A Claim of lien (aka mechanic’s lien) is a written statement signed and verified by the claimant (person demanding payment) or by the claimant’s agent which must stated the following:
- The amount demanded (minus credits and offsets)
- the name of the owner
- the kind of labor, services, equipment or material furnished by claimant
- the name of the person by whom the claimant was employed or to whom the claimant furnished the labor, services, equipment or materials (the contractor who hired you if you are a sub or the owner who hired you if you are primary contractor), and
- a description of the site sufficient for identification as required under civil code 3084.
An individual may act as sureties to satisfy bonding requirements on federal projects if they have certain acceptable assets in the required amount to support the bonds. Although federal agencies probably would prefer to deal only with approved corporate sureties, allowance for individual sureties may enhance competition by allowing awards to contractors that might not otherwise qualify to obtain bonds from an approved corporate surety.
To support bonds issued by an individual surety, agencies may only accept cash, redaily marketable assets, or irrevocable letters of credit from a federally insured financial institution. Acceptable assets include cash, CD or other cash equivalents; US agency securities; stocks and bonds traded on the New York stock exchange valued at 90% of their current 52 week low price; real property owned outright in fee simple, value at one hundred percent of its current tax assessment value’ and irrevocable letters of credit issued by federally insured financial institutions. Excamples of unacceptable assets are also listed in the regulations.
Unacceptable assets are those that may be difficult to liquidate. Examples would be life estate in real property, property with uncertain or fluctuating values like jewelry.
An individual surety is required to submit an affidavit that list the assets, the market value of those assets, and all encumbrances on the assets and list all the other bonds issued by the individual within the last three years.
Generally, federal surety bond requirements can be satisfied in three ways: (1) surety bonds issued by an approved corporate surety; (2) surety bonds issued by an individual surety who pledges certain defined types of assets; or (3) by the contractor pledging assets directly. The last and third option is uncommon and is generally not used to met federal surety bond requirements rules.
The Miller Act, 40 U.S.C. Section 270a to 270f, provides that all federal construction contracts performed in the United States must require the contractor to furnish a performance bond in an amount satisfactory to the contracting officer. A payment bond in a penal sum of up to $2.5 million, and other surety bonds as well.
In the Federal Acquisition Strealiming Act of 1994, Congress made the Miller Act inapplicable to contracts uner $100,000.00 and directed agenceis to develop alternatives to surety bonds for contracts between $25k and $100k. These statutory requirements are implemented in FAR part 28, bonds and insurance.
Within 10 days after completion of a project, you may record a Notice of Completion. Do not do additional work under the contract. This notice requires the signature of the owner or the owner’s agent.
Within 60 days of recording the Notice of Completion, you need to record the Claim of Lien.
Within 90 days of recording the lien, file a Lien Foreclosure Action and record a Lis Pendens at the same time. If you want to extend the time in which to file a foreclosure action, after you record the Claim of Lien, but before the 90 days elapse give credit to the owner and record a notice of the facts and terms of credit. The extension will be for 90 days after the credit expires but even with extensions you must foreclosure within one year after the work is completed. The action should be brought to trial within 2 years after commencement.
In order to file a mechanic’s lien, one has to provide a Preliminary 20 Day Notice. The notice states that the subcontractor or supplier has provided or will be providing services and goods to improve your property and could find a lien claim if they are not paid.
If a Preliminary 20 Day Notice is not provided then they lose their right to file a mechanic’s lien. This does not hold true for the prime contractor and laborers.
Today we are going to talk about what a payment bond is.
A payment bond guarantees the owner that a subcontractor and supplier will be paid the monies that they are due from the principal. The owner is the obligee. The beneficiary of the bond is the subcontractor and supplier. The owner, subcontractor, and supplier can sue on the bond.
On a private project, the owner can benefit from a payment bond because it provides the subcontractors and suppliers a substitute to a mechanic’s lien. If the principal fails to pay the subcontractors or suppliers, they can collect from the principal or surety under the payment bond, up to the penal sum of the bond. The penal sum of a payment bond is often less than the total amount of the prime contract and is intended to cover anticipated subcontractor and supplier’s cost.
A performance bond guarantees the owner that the principal will complete the contract according to the terms of the bid, including price and time. The owner is the obligee and can sue the principal and the surety on the bond. If the principal defaults or is terminated for default by the owner, the owner may call upon the surety to complete the contract.
Many performance bonds give the surety three choices: (1) completing the contract through another contractor; (2) selecting a new contractor to contract directly with the owner; and (3) allowing the owner to complete the work with the surety paying the costs.
Unlike a lot of states, California law is pretty clear and specifics when it covers mechanic’s liens. Section 3110 set forth the class of people a mechanic lien is designed to protect or covers.
3110. Mechanics, materialmen, contractors, subcontractors, lessors
of equipment, artisans, architects, registered engineers, licensed
land surveyors, machinists, builders, teamsters, and draymen, and all
persons and laborers of every class performing labor upon or
bestowing skill or other necessary services on, or furnishing
materials or leasing equipment to be used or consumed in or
furnishing appliances, teams, or power contributing to a work of
improvement shall have a lien upon the property upon which they have
bestowed labor or furnished materials or appliances or leased
equipment for the value of such labor done or materials furnished and
for the value of the use of such appliances, equipment, teams, or
power whether done or furnished at the instance of the owner or of
any person acting by his authority or under him as contractor or
otherwise. For the purposes of this chapter, every contractor,
subcontractor, sub-subcontractor, architect, builder, or other person
having charge of a work of improvement or portion thereof shall be
held to be the agent of the owner.
