Mechanics Liens are used to go on the offensive for parties working on private construction projects. When the project property is publicly owned, the approach to getting paid has to be a little different. When the property being improved is publicly owned, a payment bond claim (or at least threatening one) may be a good route to take. A payment bond is a surety bond posted by a contractor to guarantee that its subcontractors and material suppliers will be paid. It could be seen as a pile of money set aside to make sure the parties on a construction project get paid.
How to Make an Arizona Payment Bond Claim
Generally, payment bonds are provided by an insurance company or financial institution. On a public project, every state requires the prime contractor to obtain a payment bond from an accredited surety with a specific value. In Arizona, the payment Bond must equal 100% of the price of the project.
In Arizona, the bond claim laws are not as broad as some other states. In the Grand Canyon State, parties who furnish labor and/or materials to the general contractor or first-tier subcontractors are protected. However, lower tier subcontractors and suppliers to suppliers are not covered.
Watch Your Back
But keep an eye out for contract clauses limiting the ability to make a bond claim. In some states, these clauses are notoriously put into construction contracts in an attempt to make subcontractors and suppliers waive their lien rights and rights to file a bond claim at the start of a project. By signing such a contract, you might be agreeing to work without the security of a potential claim if you go unpaid. Often, these types of agreements are unenforceable.
Fortunately, Arizona state law prohibits contractors and suppliers from waiving their lien rights. It is statutorily mandated that all parties on a construction project use specific legislatively designed construction lien waiver forms.
Making a claim against a payment bond
In some states, a preliminary notice is required to be sent before making the bond claim. In those instances, notice may have to go to key stakeholders involved on a project, such as the property owner, general contractor, and construction lender. In Arizona, the claimant must be given out no later than 20 days after the claimant first furnished labor and/or materials to the jobsite. The preliminary notice must include 4 elements:
- A general description of the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished and an estimate of the total price.
- The name and address of the person furnishing labor, professional services, materials, machinery, fixtures or tools.
- The name of the person who contracted for the purchase of labor, professional services, materials, machinery, fixtures or tools.
- A legal description, subdivision plat, street address, location with respect to commonly known roads or other landmarks in the area or any other description of the jobsite sufficient for identification.
After required notices have been sent and you have still not been paid, you may file a claim against the bond. Similar to filing a mechanics lien, there are specific deadlines, form, and service requirements.
For a bond claim in Arizona, the claimant must provide the general contractor with notice of the bond claim within 90 days after your last furnishing of labor and/or materials to the project. While not explicitly stated, this is likely the date the notice must be received, not sent.
Who gets the Claim?
Each state requires different parties to receive the bond claim. In Arizona, claimants only need to send the bond claim to the general contractor. If the surety providing the bond is known, you can also send them a copy of the claim. Sending the surety a copy of the claim could increase your chances of getting paid.
What do you need in your claim?
Arizona bond claims must include the amount of the claim, the name of the party to whom the services were furnished, and a demand for payment. While it’s not required, it’s also a good idea to include the information for the general contractor, the contracting public entity, and a description of the project and services/and or materials furnished.
Once you have everything together, it’s time to send the claim. Arizona requires that the claim is sent by registered or certified mail. If the mail is refused, it may be advisable to have the notice of the bond claim personally served. After the bond claim is received, in most cases the surety will require more information and supporting documents before being paid or denied. The rule here is to follow up with the surety and monitor the progression of the claim.
Each state has a different deadline for enforcing a bond claim. Check out our downloadable charts to make sure you file your bond claim on time in your state.
What Happens If the Surety Doesn’t Pay Your Claim?
If you still go unpaid or the surety doesn’t pay the claim you may need to take the next step of filing a lawsuit against the bond to enforce the claim. Lawsuits can be bulky, time-consuming, and expensive. When it comes to making a claim against a payment bond, it’s all about making sure you have the details covered. It could be the difference in getting paid or not.