Introduction to Public Works Contractors' Bond Law (PWCBL)
Public Works Contractors' Bond Law (PWCBL) provides a substitute remedy for subcontractors who supply labor and materials in support of public projects and who are excluded from the protections afforded by the Mechanics Lien Law (MLL). This is guide to the essential features of the Law.
Basics of PWCBLA. PWCBL applies to contracts in excess of $5,000 pertaining to the construction, reconstruction, alteration or repair of any public building or other public work or public improvement.
B. Requires a performance bond at one hundred percent of the contract amount…for the protection of the contracting body which awarded the contract.
C. Requires payment bond at one hundred percent of the contract amount… for the protection of claimants supplying labor or materials to the prime contractor or to any of his subcontractors.
1. “Labor or materials” includes public utility services and reasonable rentals of equipment, when the equipment rented is actually used at the site.
a. “Labor and materials” do not include finance charges, attorney fees, delay damages, lost profits, “cancellation charges”, escalated material costs allegedly caused by delay of the general contractor or others, etc. Lite-Air Products, Inc. v. Fidelity & Deposit Co. of Maryland, 437 F.Supp. 801 (E.D. Pa. 1977).
b. Provisions of Pennsylvania's Contractor and Subcontractor Payment Act (“Prompt Pay Act”) permitting a subcontractor to seek penalty payments and attorney fees against a contractor according to the provisions of their subcontract does not provide for the recovery of such damages against a surety. R.W. Sidley, Inc. v. U.S. Fidelity & Guar. Co., 319 F.Supp.2d 554, 561 (W.D. Pa. 2004).
c. Interest provided for in subcontract is not recoverable by subcontractor under payment bond purchased by general contractor, where bond makes surety liable for any sums “justly due” unpaid subcontractors, but is silent as to interest payments that were provided for in the subcontract. 8 P.S. § 193(a)(1), (a)(2).
d. A Surety’s liabilities are limited to those outlined in payment bond itself. 8 P.S. § 193(a)(1), (a)(2).
D. Bonds shall be filed in the office of the contracting body which awarded the contract for which such bonds were given.
E. PWCBL places the duty to furnish a payment bond on the contractor and not on the public entity. The contracting body has no responsibility to a subcontractor for the prime contractor's omission in this regard. Cassady-Pierce Co., Inc. v. Spagnol, 635 A.2d 746, 748 (Pa. Cmwlth 1993).
F. When Surety’s liability is capped by bonding agreement between surety and contractor at the cost of completing the project with other contractors less the balance of the contract price, surety is not liable for delay damages. Downingtown Area School Dist. v. International Fidelity Ins. Co. Commonwealth Court of Pennsylvania, 769 A.2d 560, 565 (Pa. Cmwlth. 2001)
ScopeA. Scope of PWCBL is intended to be no greater than the Mechanics Lien Law, since the purpose is to place subcontractors in the same position with respect to defaulting contractors on a public works project that they would have enjoyed by virtue of a mechanic's lien on a private construction project. Can-Tex Industries v. Safeco Ins. Co. of America; 460 F.Supp. 102 (W.D. Pa. 1978).
B. PWCBL offers protection to subcontractors, not prime contractors. Valley Forge Indus., Inc. v. Armand Constr., Inc., 374 A.2d 1312, 1315 (Pa. Super. 1977)
C. PWCBL fills a gap in Mechanics Lien Law that exists by way of what is called the “public use” exemption to MLL.
1. A mechanics lien is not allowed for labor or materials furnished for a purely public purpose.
a. Relevant factors in in deciding whether a use is purely public include: 1) whether the government or a private entity managed and controlled the attached property when the lien was filed; 2) whether the property was constructed and paid for by a private entity; 3) whether the property was being used to further proprietary motives when the lien was filed; and, most importantly, 4) whether execution on the lien would disrupt an essential public service. American Seating Co. v. Philadelphia, 256 A.2d 599 (1969).
2. PWCBL is not applicable to public utility (such as PP&L).
a. To be covered by PWCBL, an entity must undertake construction projects which involve the direct or indirect expenditure of public funds.
b. A private corporation which is free to manage its own affairs so long as it does not act contrary to any law or regulation, is not considered a “public entity” for purposes of PWCBL. See Solar Electric Co. v. Pennsylvania Public Utility Commission, 9 A.2d 447 (Pa. Super. 1939).
c. Is company public or private? Questions include:
i. Is property is owned by the private citizens who constitute its body of shareholders?
ii. Does it receive public funds, directly or indirectly, for the construction, reconstruction, alteration or repair of its buildings, works or improvements?
iii. Does it have power to tax?
iv. Does the funding of its projects depend on its own revenues or financing techniques resorted to by other private corporations?
D. PWCBL was repealed as to Commonwealth agencies and replaced by the Commonwealth Procurement Code in 1998.
E. PWCBL applies whether or not the material furnished or labor performed enters into and becomes a component part of the public building or other public work or public improvement, including highway work.
Surety’s ObligationsA. A payment bond may provide greater protections than the PWCBL if the bond language so provides, but “[t]he obligation of a bond cannot be extended beyond the plain import of the words used.” R.R. Wilmot, Inc. v. American Ins. Co., Inc., 642 A.2d 584, 586 (Pa. Cmwlth. 1994).
a. A payment bond's language may provide for a longer limitation period than that set forth in the PWCBL.
B. Generally, surety bonds are interpreted liberally in favor of third parties to the bonds. Keefer v. Lombardi, 102 A.2d 695 (Pa. 1954).
a. If there are multiple reasonable interpretations of a bond, the bond will be interpreted in favor of the obligee, laborers, or materialmen. Poole v. Great American Insurance Company, 182 A.2d 509 (Pa. 1962).
b. A surety that intends to avoid liability should include an express provision in the bond establishing the same. Pennsylvania Supply Company v. National Casualty Company, 31 A.2d 453 (Pa. Super. 1943). The court in Pennsylvania Supply Company specifically cautioned that “[a] bond may contain any number of conditions and a breach of one of them will impose liability on the surety.” Id. at 456.
C. Surety is obligated under payment bonds to make benefit contributions mandated by contract between union benefit plan fund and public works contractor when payment bond required Surety to cover the cost of “labor”, because the benefit contributions were an integral part of the Contractor's cost of labor. Carpenters Local 261 Health and Welfare Fund v. National Union Fire Ins. of Pittsburgh, Pa., 686 A.2d 1373, 1379 (Pa. Cmwlth 1996).
Notice and Timing RequirementsA. Right to make claim accrues upon expiration of ninety (90) days after the day on which claimant performed the last of such labor or furnished the last of such materials for which he claims payments. 8 P.S. § 194.
B. Any claimant who has a direct contractual relationship with any subcontractor of the prime contractor but has no contractual relationship with such prime contractor may bring an action on the payment bond or other financial security only if he has given written notice to such contractor within ninety days from the date on which the claimant performed the last of the labor or furnished the last of the materials for which he claims payment, stating with substantial accuracy the amount claimed and the name of the person for whom the work was performed or to whom the material was furnished.
C. Notice shall be served by registered or certified mail, postage prepaid, in an envelope addressed to such contractor at any place where his office is regularly maintained for the transaction of business or served in any manner in which legal process may be served…for the service of a summons, except that such service need not be made by a public officer.
D. There is a one-year statute of limitations for actions upon any payment or performance bond, which commences upon the expiration of that statutory ninety-day waiting period. 42 Pa.C.S.A. § 5523; 8 P.S. § 191 et seq.