GETTING PAID: Government Contracts

11/29/2016 by Attorney Neil S. Lowenstein

Authored by Attorney Neil Lowenstein,

While we have discussed payment mechanisms for government projects previously, we thought a short refresher might be of interest. Typically, government construction projects, whether federal, state or local, have payment bonds to protect contractors who provide labor or materials for the project. But, Refresher Point #1 is that is not always the case. Generally speaking, construction bonds are only required for federal construction projects over $100,000, while in Virginia the threshold is a higher $500,000 ($350,000 for road or transportation projects). So, step one to getting paid is confirming whether there is a payment bond or not.

Refresher Point #2 is that if there is a payment bond, you may be required to give notice before you can bring action to recover against the payment bond. The notice requirements are similar for federal and Virginia government projects; but not the same. Notice is not required for either if you have a direct subcontract or purchase order with the prime contractor. If not, both require written notice to be given to (actually received by) the prime contractor within 90 days of when you last furnished or supplied labor or materials.

Notices for both must state with substantial accuracy the amount claimed and the name of the person for whom the work or materials were performed or furnished. Federal project notices. For federal projects the notice can be delivered by any means that provides written verification of delivery or by any means by which the United States Marshal’s office can serve summonses. However, for Virginia projects the notice must be served by registered or certified mail, postage prepaid, in an envelope addressed to the prime contractor at any place the prime contractor regularly maintains for transacting business.

Refresher Point #3 is that not all persons that furnish work or supply materials for a bonded project can recover under the bond. Besides the notice precondition, third-tier subcontractors or suppliers who do not have direct contracts with the general contractor or a second-tier subcontractor are not covered by the payment bonds for federal projects. The Virginia courts have not ruled on whether these lower tier subcontractors and suppliers would have a claim against a payment bond on a government contract, although the terms of the payment bond itself may provide more coverage than required by the statute.

Refresher Point #4 is that under both statutory schemes an action to enforce a payment bond claim must be filed in an appropriate court with jurisdiction (for federal projects, the federal district court where the project is located; and for Virginia projects, the circuit court where the project or the general contractor is located). That deadline is not flexible, and includes retainage claims as well.

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