In the construction industry, keeping a close eye on your lien and bond claim deadlines is critical to secure your right to payment. Missing these deadlines could be the difference between payment and non-payment. Here’s the problem: Determining when the clock on these timeframes begins to tick isn’t always that clear. A recent Court of Appeals case helped clarify when exactly the deadline to file a Washington bond claim is triggered.
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Washington bond claim deadline
…such persons shall not have any right of action on such bond for any sum whatever, unless within thirty days from and after the completion of the contract with an acceptance of the work by the affirmative action of the board, council, commission, trustees, officer, or body acting for the state, county or municipality, or other public body, city, town or district, the laborer, mechanic or subcontractor, or material supplier, or person claiming to have supplied materials, provisions or goods for the prosecution of such work, or the making of such improvement, shall present to and file with such board, council, commission, trustees or body acting for the state, county or municipality, or other public body, city, town or district, a notice in writing…
This section basically says that, in order to file a bond claim, you must notify the government agency within 30 days of finishing the project (with city approval).
That seems pretty straightforward. But as with everything in the legal realm, it can get more complicated than it seems. Think about the last project you worked on. Do you know the exact date of “completion of the contract” and the “acceptance of the work by an affirmative action?” Probably not. And that’s exactly the problem State Construction, Inc. was faced with.
Determining when the bond claim period begins
The case in question: State Construction, Inc. v. City of Sammamish
- Owner: City of Sammamish (City)
- General Contractor: Porter Brothers Construction, Inc. (Porter)
- Surety company: Hartford Fire Insurance Company (Hartford)
- Subcontractor: State Construction, Inc. (State)
In May of 2014, Porter contracted with the City of Sammamish to construct the Sammamish Community & Aquatic Center. This was done under a standard AIA A201-2017 General Conditions Contract for Construction.
Porter, in turn, hired State Construction to perform excavation and utilities work. Porter also obtained performance and payment bonds from Hartford for the project. As the project neared substantial completion, Porter Bros. was having financial difficulties and was forced to abandon the contract. This is when Hartford stepped in to finish the project.
City passes a resolution declaring substantial completion
In April of 2016, the City declared that the project was substantially complete, and the punch list items were finished the following month. However, there was still plenty of corrective warranty work to be done. On February 21, 2017, the City council passed a resolution. This resolution reaffirmed that the project was substantially complete in April of 2016. The resolution authorized the “contract closure process,” even though State Construction (the subcontractor) was still performing some warranty work.
On March 27th, 2017, State filed a bond claim against Hartford for $250K. A few weeks later, the City also filed a notice of completion (under RCW 60.28.051) declaring the “date work was completed” was 4/1/2016, and that the “date work was accepted” was 2/21/2017.
Hartford moved to have the claim dismissed as the claim was filed 34 days after the resolution, 4 days past the deadline. State Construction countered this argument based on two theories. The first was that the resolution didn’t trigger the claim period. The second theory was, even if the resolution did trigger the claim period, there was still ongoing warranty work after the resolution.
The trial court rejected both these arguments, and dismissed the claim. State Construction appealed.
Court of Appeals dismissed the bond as it was filed late
On appeal, the court looked at both arguments set forth by State (the subcontractor). The first was based on the resolution itself. State Construction argued that, since the resolution indicated that the “contract closure process” was authorized, the project had yet to be accepted as completed contract work. The court disagreed, stating that the process was merely an “internal administrative process,” which had no effect on the acceptance or completion of the work.
As for State’s second argument, they claimed they were still performing warranty work after the resolution was passed, and therefore still within their deadline period. This argument was also rejected.
The Porter Bros. and the City used an AIA contract which specifically establishes a one-year warranty period. However, the warranty period under AIA contracts is triggered upon substantial completion. State’s “warranty work” didn’t extend the claim deadline beyond substantial completion, which is when the bond claim deadline began.
Therefore, the court declared that the city’s resolution was “legally conclusive” to start the bond claim period. But more importantly, the court also declared that warranty work will not extend the period to file a bond claim. Because, by definition under the American Institute of Architects, warranty periods begin when the work is sufficiently complete and ready for the occupation of use by the owner.
The Appeals Court declared that State Construction’s bond claim was filed late. They dismissed the bond claim.
Always keep an eye on your deadlines
This is a problem that occurs way more frequently than it should. Contractors and suppliers faced with payment problems find themselves with little recourse because they missed a deadline. Be sure you understand not only when the deadline to assert your rights ends, but also when the deadline clock begins to tick.
Also, when in doubt, take action early. When you see an issue arising, you should be proactive. State Construction, for example, was only 4 days late and lost their bond claim. Mechanics liens and bond claims provide an enormous amount of security. Losing those rights over a miscalculating a deadline can be devastating!