Two important changes that contractors in Arkansas need to be aware of to protect their payments go into effect at the end of this month: One affects how a claim against a payment bond can be made on public projects, and the other allows residential contractors to be able to maintain other causes of action to enforce their contract if they fail to provide the preconstruction notice to the owner.
Claims against public payment bonds procedure changes
Act 986: “An Act To Amend the Law Concerning the Bonding Procedure for Payment or Performance Bonds Issued Under Contracts for the Construction, Erection, Alteration, Demolition, or Repair of Any Building, Structure, or Improvement.”
Bonding thresholds increased
First and foremost, the price of the public construction contract that requires a payment bond to be posted has increased. Currently, all projects over $35,000 require a bond. This amount has increased to all public works projects valued at $50,000 or more.
Similarly, the contract value that triggers a required bond on projects involving a religious or charitable organization also increased. In Arkansas, such projects should require a contractor to post a payment bond on projects over $1,000, this has been dramatically increased to projects valued at $20,000 or more. What hasn’t changed: If the prime contractor fails to furnish a bond, all claimants except the prime contractor may still assert and enforce a lien on the property.
New bond claim requirement
The most significant change to the bond claim process in Arkansas comes in the form of the required claim prior to enforcing the claim in court. Arkansas is one of the few states that don’t require any statutory claim to be filed with the surety prior to initiating a lawsuit. Generally, if there is a claim required, it is required under the terms of the payment bond itself. No longer.
Under the new legislation, all claimants that didn’t contract directly with the prime contractor who posted the bond must send a bond claim to both the contractor who posted the bond and the surety company that provided the payment bond within 90 days after the claimant’s last date of furnishing labor and/or materials to the project. The claim will need to be served “by any means that provides written third-party verification of delivery,” so certified mail will do the trick.
As far as the contents of the claim itself, the Act only requires the claim to “state the amount claimed and the name of the party to whom the material was furnished or supplier of for whom the labor was done or performed.” However, here at Levelset, we operate under a “the-more-information-the-better-mantra,” so we recommend adding a few more pieces of identifying information; such as a project address, a brief description of the labor/materials provided, and the date the claimant last furnished said labor/materials. This will help facilitate the process, and bypass any potential follow-up questions the surety company may have after receiving the claim.
Enforcement deadline extended — and clarified
The last major change under the Act is the deadline to enforce a bond claim in court. As it stands, the enforcement deadline is a bit confusing. Let me explain. There are two, seemingly conflicting, statutes that discuss the deadline to bring an action against a payment bond:
- Ark. Code §18-44-508(b): No action shall be brought on the bond after six (6) months from the date final payment is made on the contract…
- Ark. Code §22-9-403(b)(1): No action shall be brought on a bond after one (1) year from the date final payment is made on the contract…
Due to this conflict, we’ve always advised to err on the side of caution and recommend filling suit within the 6-month deadline. However, under the new legislation, the deadline under §18-44-508 has been changed to one year from the date of either (1) final payment is made on the public construction contract, or (2) the principal contractor on the payment bond ceases work on the contract; whichever is earlier. Furthermore, the 1-year deadline under §22-9-403 has been stricken from the record books entirely!
Learn more – Payment Bond Claims: Common Myths You Should Ignore
Residential contractors retain contract rights if they fail to provide notice
Act 984: An Act to Amend the Law Concerning a Residential Contractor’s Lien Notice Requirement
- Sponsor: Rep. John Payton
The other change in Arkansas should come as a bit of relief for residential contractors. Currently, under Ark. Code §18-44-115(a)(4) if a contractor on a residential project fails to provide this “pre-construction notice,” they forfeit the right to assert a mechanics lien against the property. Additionally, the contractor is also barred from bringing an action either at law or in equity, including without limitation, quantum meruit, to enforce any provision of a residential contract. Meaning if you don’t get paid, you have zero legal recourse! That’s a fairly harsh penalty, which is likely the cause for this change.
It’s a pretty simple change in the law. If a contractor fails to make the proper disclosures on the front end they lose the ability to place a contractor’s lien. But there’s no reason that they should lose all other remedies if they can prove in a court of law that the work was done and the customer should pay.– Rep. John Payton
Once this Act becomes effective, the contractor will still be barred from filing a mechanics lien if they fail to provide this notice, but they will still be able to enforce the provisions of the residential contract under claims such as breach of contract, unjust enrichment, or quantum meruit.
Download a free Arkansas Pre-Construction Notice to Owner form here.