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If you’re a general contractor on a construction project, you know that one of the most important parts, besides the construction itself, is ensuring that the flow of money from the project owner to subcontractors is as smooth as possible. Additionally, if you have experience on public projects, you likely know that the law requires general contractors to acquire payment bonds from private insurers. In the unfortunate event that subcontractors, sub-subcontractors, or suppliers aren’t paid these parties may make a claim against the bond. After some recent re-working, North Carolina bond claim law now may provide some protection to general contractors from being forced to pay double when their subcontractor fails to pay more remote subs.

North Carolina Bond Claim Law Historically Placed the Burden of Double Payment on General Contractors

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Until January 1, 2013, North Carolina law seemed geared much more to protecting the subcontractor than the general contractor. What happened, for example, if a second-tier subcontractor never received compensation from a first-tier subcontractor who was paid by the general contractor? Unfortunately for North Carolina GC’s, the second-tier subcontractor (or lower) could directly sue the general contractor in their action on their bond claim. Essentially, even though the general contractor already paid the first-tier subcontractor the full amount due, if that money never made it past the first-tier, the GC would be liable for paying everyone the first-tier never compensated. Accepting this risk of “double payment” was something that general contractors in North Carolina had to live with.

Making a North Carolina Bond Claim May Require Additional Notice

After decades of lobbying, the North Carolina legislature finally modified N.C. Gen. Stat. § 44A-27 in an effort to extend more protection to general contractors against the possibility of double payment through a North Carolina bond claim. Subs must first file a “Notice of Public Subcontract” in order to preserve their right to sue in certain cases.This revision took effect on January 1, 2013, along with many other changes to the North Carolina bond claim and mechanics lien scheme. Although the law still enables second-tier (or lower) subcontractors to directly sue the general contractor if the subs aren’t paid, these subs must first file a “Notice of Public Subcontract” in order to preserve their right to sue in certain cases, much like the Notice of Subcontract already required for private projects. Section (b) of the new law explains that lower subs must file Notice within 120 days

from the date on which [the second-tier or lower subcontractor] performed the last of the labor or furnished the last of the materials for which [the sub] claims payment.

The Notice has content requirements such as a description of the amount claimed, the name of the person for whom the work was performed or to whom the material was furnished, a description of the property, and more.

The general contractor also has obligations under the revised law, and is required to provide a Contractor’s Project Statement to all subcontractors with whom he contracts. The Statement must include the name and address of the project and the name of the contracting body and contractor. Additionally, upon request the GC must provide a copy of the payment bond within seven days.

New Protection Against Double Payments Under North Carolina Bond Claim Law

The new law actually creates two protections against double payments
The new law actually creates two protections against double payments, therefore, for general contractors. First, first-tier subs must pass down the GC’s Statement to all lower subcontractors. Second, upon receipt of the Statement, second-tier subs or below must then provide Notice to the general contractor. Without both, a remote subcontractor is limited in his rights to make a successful North Carolina bond claim.

Although the new law doesn’t completely protect general contractors from the risks of double payment in the event that remote subcontractors are not paid, there are now additional requirements for remote subcontractors to preserve their right to make a bond claim.