Kegler Brown, in conjunction with Overmyer Hall Associates, presented "Bond Claims: How to Make Them + How to Avoid Them" on Wednesday, February 26. This seminar focused on providing bond claim information and insurance updates to subcontractors and general contractors.

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Subcontractors
Bond Claims: How to Make
Them + How to Avoid Them
Presented by Don Gregory
and Jack Kehl
Kegler Brown Hill + Ritter
Overmyer Hall Associates
February 26, 2014

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What is a Bond?
+ Bonds
are legal documents designed to protect a one
or more parties to a contract
+ There
+ Bid
are three types of bonds:
Bond
+ Payment Bond
+ Performance Bond

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Bond Forms
+ The
bond format is a legal document and binding upon all
parties to the contract
Statutory Forms – Federal, State, Local
+ Industry Standard Forms
+
+
+
+
+
AIA 312
Consensus
EJCDC
Surety In-house Forms
+ Contractor Drafted Forms
+ Private (Individual) Sureties

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Payment Bonds – When to Make a
Claim
+ Who
is a proper claimant under the bond?
+ Subcontractors
+ Suppliers
+ Laborer
+ Others

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Who Can Recover Under
Ohio Public Work?
+ “Subcontractor”
Includes lower tiers
+ “Material
+ “Laborer”
Supplier”

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Who Can Recover?
Federal
State
Private
Subcontractor
(1st tier and 2nd
tier if notice)
Subcontractor
(all tiers)
Who knows?
Material Supplier
(1st tier)
Material Supplier
(all tiers)
Read Bond
Laborer
Laborer

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What is a “Lawful Claim” Under
Payment Bond?
Yes
No
Labor
Prompt Pay Interest + Fees
Material
Prevailing Wages Interest
Union Pension Funds
+ Fees
Payroll Taxes
Workers’ Comp. Premiums
Equipment
Federal Taxes
Attorneys’ & Consultant
Fees

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Payment Bonds – What is
Covered?
+ Subcontractors
+ Labor
costs
+
Wages
+ Labor Burden
+ Lost Productivity
+
Materials
+
+
If incorporated into project
Rental Equipment (State)
+ Others

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Payment Bonds – What Forms are
Used?
+ Bonds
+ Form
+ Bonds
+
on Federal Projects
25A
on State Projects
Form ORC 153.571
+ Local
Projects
+
Franklin Co.
+ City of Columbus
+ Common
Law bonds – Sub to GC

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Timing of a Public Payment
Bond Claim in Ohio
Notice of Claim
Suit
90 days after
“final acceptance”
Waiting Period
60 days
File
1 year after
“final acceptance”

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Federal Projects
+
Only A Bond Claim Is Available
+
Key Points To Remember –
+
If you are not in contract with the prime you
must file your “notice” within 90 days after your
last day of work.
+ Must file suit on the bond within 1 year from last
day of work.
+
Limited Protection – no protection if you are
providing material to a sub-subcontractor

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Payment Bonds – How to Make a
Claim
+ Notice
of Commencement
+ Notice
of Furnishing
+ Documentation
+ Notice
+ Suit

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Two Phases
+ Phase
1 - Preserve Your Payment Bond Rights
•
Request A Notice of Commencement
• Serve A Notice of Furnishing (if no contract with Prime)
+ Phase
•
2 –File Your Bond Claim
Bond Claim Affidavit

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Who Has to Serve a Notice of
Furnishing?
+ You
do not have a contract with the Prime (GC, CM,
D-B)
+ Such
+ You
as sub-sub or supplier to sub
are providing labor and/or material greater than
$30,000

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Not Required If + Less
than $30,000 of labor and/or material provided
+ Subcontractor
directly to Prime

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Step One: Request a Notice of
Commencement
+ Provides
information about an improvement, including bond
Available upon request from Public Authority.
Phase 1 – Preserve
Your Payment Bond
Rights

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Step Two: Serve a Notice of
Furnishing
+ Puts
the Prime Contractor on notice
+ Send
by Return Receipt (certified mail)
Phase 1 – Preserve
Your Payment Bond
Rights

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Notice of Furnishing for a Public
Project

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When Do You Do All of This?
+ Simple Answer
+ Right
+ 21
When You Start Work /Furnish Material
Day Window
+ “Better
late than never”
Phase 1 – Preserve
Your Payment Bond
Rights

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21-Day Window
Looking Back
Looking Forward
Preserved Going Forward
Preserved if in the
21 Day Window
NOF
Phase 1 – Preserve
Your Payment Bond
Rights

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Phase 2 – Perfect Your Payment
Bond Rights
+ Rumors
+ You
Have Payments Overdue
Phase 2 – Perfect
Your Bond Claim

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Deadlines to Keep in Mind
+ Serve
Bond Claim on Surety
+ 90
days from final acceptance of work by Owner
+ Surety has 60 days to “investigate”
+ File
Suit
+ Within
one year after final acceptance
Phase 2 – Perfect
Your Bond Claim

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Submit a Bond Claim to the
Prime Contractor’s Surety
Practice Tip:
Obtain a copy of the Bond when
you start the Project. This can be
done via a public records request.

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Risk of Doing Nothing
+ Must
file suit on a bond claim within one year of
Owner Acceptance.
+ OR
claim is waived

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Advantages of a Bond Claim
Over a Lien
+ You
know that the money will be there.
+ Cannot
be trumped by owner’s claim for liquidated
damages, cost to complete, etc.
+ Typically,
have more time to assert bond claim.

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Performance Bonds –
How to Avoid a Claim
+ Perform
+ Document
+ Communicate

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Questions?

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Trends for 2014 in Law +
Insurance
Presented by Jack Kehl and Joe Urquhart
Don Gregory and Mike Madigan
Overmyer Hall Associates
Kegler Brown Hill + Ritter
February 26, 2014

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Legal Trends
1.
Less trials, more mediation
2.
More legalistic notice and claims process
3.
Harsh results for contractors who do not dot “i”s
and cross “t”s

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Legal Review 2013
1.
J&H – Tenth District Court of Appeals upholds
contractor recovery against state
2.
Transtar – “Pay-if-paid” under attack, and appealed
to Ohio Supreme Court
3.
Atlantic Marine – U.S. Supreme Court upholds
venue provisions.

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What to Expect Legally in 2014
1.
A “pay-if-paid” decision from the Ohio Supreme
Court
2.
Fallout from State’s new project delivery systems
(such as more sub claims and less prime claims
against State)
3.
Greater use of referees in Court of Claims (to the
benefit of contractors?)

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Insurance Trends - 2014
1.
What to Expect from Rates
2.
Capacity in the Marketplace
3.
New Risk and Coverage Issues

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What to Expect From Rates
– Down 5 to 10%
+ Casualty (GL) – Flat to up 5%
+ Auto – up 5% to 10%
+ Umbrella – up 5% to 10%
+ Workers Comp – up over 10%
+ EPL – up 5% to 10%
+ Professional – flat to up 5%
+ Property

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Capacity in the Marketplace
+ Market
+ It
capacity is near all-time highs
was a good year for investment income
+ It
was an excellent year from underwriting loss ratio
standpoint for most companies
+ What
does this mean for you? It should stay competitive
in the marketplace for accounts with good loss ratios,
active safety programs, and have solid financials

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New Risk + Coverage Issues
+ Cyber
Liability and Crime
+ Fiduciary
Liability
+ Employment
Practices – Wage and Hour
+ Professional
Liability
+ D&O/Entity
Coverage

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General Contractors
Bond Claims: How to Make
Them + How to Avoid Them
Presented by Don Gregory
and Jack Kehl
Kegler Brown Hill + Ritter
Overmyer Hall Associates
February 26, 2014

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Should a Bond Be Provided?
Factors To Consider
+ Is
it a specialty subcontractor difficult to replace?
+ Is
it a subcontractor that will drive the schedule?
it a subcontractor who you have not “qualified” or
shows “red flags”?
+ Is
+ Is
it a subcontractor with a contract value greater than
50% of the firm’s equity?

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What Bond Forms to Use?
Performance – Mandated by Owner
(Owner)
Must be responsive
Performance – Industry form (AIA, ConsensusDOCS, etc.)
(Sub)
or
Use your own

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When Should You Notify
Surety for Sub?
+ DEFAULT
+ Failure
to pay bills
+ Failure to follow schedule
+ CONSTRUCTION
+ WARRANTY
DEFECT
CLAIM

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How Do You Make Claim?
Letter with Documentation
Legal Action after 60 Days

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What Must a Sub/Supplier Do To
Assert Payment Bond Claim?
1.
If labor/material ˃ $30,000; and
2.
No contract with GC
MUST SERVE A NOTICE OF FURNISHING

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What To Do When a Payment
Bond Claim is Threatened?
+
Investigate Payment with Lower Tiers
+
Communicate with your Surety
+
Seek out Documentation Downstream

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What To Do When the First
Warning Signs Occur?
Give preliminary notice of default/termination IN
WRITING.
2. Verify payment status of all subs/suppliers
regardless of tier.
3. Consider joint checks or direct payment for
lien/bond waivers and backcharge the sub.
4. Set in motion a plan to take over the work if
necessary.
1.

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Benefits of Proper Affidavits
+ Lien/Bond Waivers

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Final Release + Waiver

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How Do You See That Lower
Tier Trades/Suppliers Get Paid?
+ Joint
checks are best
+ Can
make sole check if NOF received
+ Due
diligence to avoid overpaying
+ Always
+ Seek
insist on lien/bond waiver from lower tiers
affidavit from your sub
+ Never
forget about laborers

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What To Do When a Performance
Bond Claim is Threatened?
+ Communication
– no surprises
+ Has
there been a “default” – read the Contract
+ Get
the right construction attorney involved

51. z
Performance Bonds – How to Avoid a
Claim
Perform
Document
Communicate

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Questions?