FAILURE TO OBTAIN PAYMENT BOND
By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Under state law, owners of commercial construction projects are often required to obtain a payment bond from the project’s general contractor.
Specifically, Utah Code Ann. § 14-2-1(2) states: “[b]efore any original commercial contract exceeding $50,000 in amount for the construction, alteration, or repair of any building, structure, or improvement upon land is awarded to any contractor, the owner shall obtain from the contractor a payment bond . . . that becomes binding upon the award of the original commercial contract to the contractor.” For purposes of these statutes, commercial projects are defined as any project which is not single family detached housing or multifamily attached housing up to and including a fourplex.
If the owner complies with the statute and requires the general contractor to obtain the payment bond, unpaid suppliers and subcontractors can make a claim on the payment bond, which is similar to making a claim on an insurance policy. If the owner obtains this payment bond, it will avoid risk of having to pay twice for work performed on the project.
However, if the owner does not require the general contractor to obtain a payment bond, Utah Code Ann. §14-2-2(1) provides that “[a]n owner who fails to obtain a payment bond required under Section 14-2-1 is liable to each person who performed labor or service or supplied equipment or materials under the commercial contract for the reasonable value of the labor or service performed or the equipment or materials furnished up to but not exceeding the commercial contract price.” Notably, under these statutes, the unpaid subcontractors or suppliers will also be entitled to an award of their attorney’s fees and costs.
Subcontractors and suppliers who have unpaid invoices on commercial projects should carefully evaluate whether claims exist against the owner for its failure to require the general contractor to obtain a payment bond. Notably, under these statutes, claims against the owner should be commenced quickly as they are barred unless brought within one year of the subcontractor or supplier’s last day of work.