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Home>Levelset Community>Legal Help>We received notice in July that the Contractor filed for bankruptcy. We are out the retainage and the startup monies. Can we collect against the Contractors Payment Bond? We have not filed notices to date.

We received notice in July that the Contractor filed for bankruptcy. We are out the retainage and the startup monies. Can we collect against the Contractors Payment Bond? We have not filed notices to date.

KentuckyBankruptcyBond ClaimsLien DeadlinesLien on FundsRecovery OptionsRetainage

We supply solids removal equipment to Contractors and Subcontractors for large municipal and private water projects. Our Agreements include startup and commissioning services as part of the agreement. During the construction of the facility, we may deliver the physical equipment in March and not be back to perform startup/commissioning until November, eight months after the equipment was delivered. In states that require notices and lien documents be filed within an allotted number of days after delivery how does the delay of services play into the timing. Example: we delivered equipment to a facility in KY in October of 2018. The Contractor held 5% retainage. In June 2019, we performed the startup, commissioned the equipment, and invoiced for the startup. We received notice in July that the Contractor filed for bankruptcy.

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Jul 18, 2019
That's an interesting question, and I'm sorry to hear that you've been facing issues on this job. There are a lot of moving parts here, so let's break things up a bit: first, we'll look at how bankruptcy can affect payment claims for Kentucky public projects; then, we'll move to deadlines for making claims on Kentucky public projects.

Payment claims and bankruptcy
Regarding bankruptcy and payment claims - a bankruptcy filing will generally prohibit a claimant from making payment claims directly against a party who has filed bankruptcy. However, when those claims are made against someone or something else, such as project funds or a surety bond, a customer's bankruptcy shouldn't prevent a claim from being made. And, in Kentucky, the best recovery options when unpaid on a public project will often be either (1) perfecting a lien on the project funds (if any public funds remain unpaid on the project); or (2) making a claim directly against the project's payment bond. As mentioned above, because neither claim acts as a claim directly against the bankrupt party, both options should still be on the table, regardless of any bankruptcy filing.

Deadlines for making claims on Kentucky public projects
When unpaid on a Kentucky public project, there are generally two ways to compel payment outside of pursuing legal options: (1) making a claim of lien upon the project funds (rather than against the property, itself), and (2) making a claim against the project's payment bond.

Claim of lien upon funds
When a lien claim is made against the project funds, the public funding for the project gets frozen (at least to the extent of the claim) and cannot be utilized until that lien claim is somehow resolved. So, when a subcontractor or supplier goes unpaid and files a claim of lien upon funds, the public entity cannot release those funds to theit prime contractor until the claimant's claim is resolved. In Kentucky, the deadline to make a claim of lien upon th project funds is generally 60 days from the later of the following two dates: (1) the last date the claimant furnished labor or materials to the project, or (2) the substantial completion of the project. So, even if there's some trickiness to when the "last furnishing" date occurs, a Kentucky claimant will still be able to file their claim of lien upon funds up to and until 60 days from the completion of the project. Note, though, that the earlier the better for these types of claims (generally). If all project funds are paid out, there may be no funds to lien.

Bond claim
Unlike other states, there isn't a hard deadline for making a bond claim in Kentucky. Rather, bond claims must be made pursuant to the terms of the bond that was secured for the project. So, in order to be sure what the deadlines will be for making a bond claim, and to better understand the process required for making a Kentucky payment bond claim, it's important to get a copy of the project's payment bond. With that in hand, a claimant can better understand how they can pursue a claim against the project's bond.

For more information on making claims against public projects in Kentucky, here's a great resource: Kentucky Bond Claim Overview.

Notice requirements for making a claim
In Kentucky, there are generally no statutory notice requirements that a claimant must fulfill before making a bond claim. However, like the deadline described above, the terms of the bond itself will apply - so, if the bond requires that some notice be given before a claim can be made, then that notice will generally be required. As for a claim of lien upon funds - notice must be filed before a claim can be made, but there isn't a strict deadline for when that notice must be filed. So, as long as a claimant still has time to make a claim of lien upon funds, presumably, there will still be time to file the notice. For more background on what notices are required for Kentucky construction projects and when: About Kentucky Preliminary Notices.
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