MECHANIC'S LIENS DON'T WORK FOR PUBLIC PROJECTS
By Thomas A. Nolan of
Beck, Jonson & Nolan, PC
Although mechanic's liens are usually a good tool for assuring payment, they are not the proper procedure to use in Colorado when a construction project involves property owned by a government body. Instead, a claim for payment should be submitted under the Miller Act for federal projects and under Section 38-26-107 of the Colorado Revised Statutes for projects in Colorado which involve property belonging to the State or any city, county, municipality, school district or other political subdivision.
The Miller Act, 40 U.S.C.A. 3131-3133, requires a general contractor on most federal projects to post a payment bond for the protection of subcontractors and suppliers on the project. If labor or materials are not paid for, the claimant can sue on that bond to obtain payment. When the claimant has subcontracted directly with the general contractor, no notice of claim is required before filing suit. However, if the claimant is a second tier subcontractor, he must first send written notice to the general contractor by registered mail (or similarly verified means). That notice must be sent within 90 days after the claimant's last labor or material and should identify with substantial accuracy the amount of the claim and the party to whom the material or labor was supplied. The suit on the payment bond must be started no sooner than 90 days and no later than one year after the claimant supplied his last labor or materials on the project.
The option of suing on the payment bond is the only protection under federal law which usually assures an adequate source for collection. It differs from mechanic's liens in that the property does not become encumbered. Claimants can obtain certified copies of the payment bond and general contract by submitting a sworn statement to the "department head or agency head of the contracting (government) agency," stating that the claimant has supplied labor or materials and has not been paid. (Copies might also be obtained by informal request to the general contractor.) The Army, Navy, Air Force and Treasury are authorized to waive the payment bond on cost-plus-fee contracts.
The Miller Act does not prevent any party from asserting other claims against general contractors and subcontractors. Such claims may be based upon breach of contract, unpaid open account, etc. The Miller Act merely provides an additional source for collection, i.e. a payment bond.
For projects involving property owned by the State of Colorado or any of its political subdivisions (city, county, etc.), the procedure is slightly different. A claimant can submit a written statement describing the nature of the claim and the amount which remains unpaid. This statement must be verified, i.e., sworn to and notarized. It should be filed with the "board, officer, person or other contracting (government) body by whom the contract was awarded." It can be submitted at any time up to and including the time of "final settlement." (Final settlement must be advertised by newspaper publication, and it is usually possible for the claimant to stay apprised of the project's progress and submit the verified claim long before final settlement.)
Once a verified statement of claim has been submitted, the government agency will reserve sufficient funds for payment. Those funds will be withheld from the payments due under the general contract. The claimant must then resolve the payment dispute with his debtor or file suit for the payment. In either case, the resolution or filing of suit must occur within 90 days after the date fixed for final settlement. (Otherwise, the government will release the funds to its contractor.) If suit is started, a notice of commencement of action must be filed with the contracting government agency within that 90-day period. The agency will then continue to hold the reserved funds for distribution according to the lawsuit's result.
General contractors are also required by Colorado law to post payment bonds on most major public works projects and to file those bonds with the contracting agency. Subcontractors and suppliers are also entitled to assert payment claims against the surety on such bonds. The steps for assuring the liability of the surety are usually specified by the bond, rather than by statute. A suit against the surety must be started within 90 days after the date fixed for final settlement on the project.
Contractors who are not thoroughly familiar with the requirements of the Miller Act and the Colorado statute for claims on public projects would be well advised to contact Beck, Jonson & Nolan, PC when trying to get paid on one of those projects. Don't delay!
