by John P. McGill, Special Counsel for Archer Norris, Walnut Creek, CA
You pick up your ball and bat and you take out your mitt, and you are off to the game. But what game? Baseball? Softball? Cricket??
Just so with construction contracting: are you engaged in a public works project or is it private works? Given that they are similar but not necessarily the same, it is absolutely critical that contractors, and especially subcontractors, know who the owner is for any project they are on. Do not assume that simply because the project is a subdivision that there cannot be a public Owner involved in the project. There can be; and if there is, then you have a different set of rules and if you don’t comply with those rules, you will lose some very important rights.
In a recent case, a subcontractor lost its rights to claim on the payment bond because they didn’t realize that the prime contract was with a local public agency despite the fact that the project itself was a subdivision being developed by a private party.
In California Paving & Grading Inc v Lincoln General Insurance Co, Cal. Paving sued the General Contractor’s payment bond surety for money that it was owed. The problem was that Cal Paving thought the project was a private work of improvement. It wasn’t; the City of Los Angeles was a party to the development agreement and because it was, and because the work that Cal Paving performed was required in order for the City to approve the subdivision, Cal Paving’s work on the project was a public work of improvement. A whole different set of rules applied, Cal Paving did not comply with those rules, and as a result, lost its rights in court.
What did they do wrong?
First, Cal Paving was required to provide a Public Works 20-Day Notice, not a Private Works 20-Day Notice. The Private Works Notice that was provided was served on the General and on the Bond surety, but it was not served on the Public Owner. By statute, the Public Owner must receive that Notice or it is not effective. If the 20-Day Notice is not correct for the work being done, then the rights that it seeks to preserve are not preserved at all.
Cal Paving tried to argue that it substantially complied with the Notice requirement by providing the Private Works Notice to the General and to the surety. The court rejected that argument because the statute requires that the contractor and the Public Owner both receive the Notice. There are two distinct 20-Day Notices; one for public works and another for private works. In this case, because Cal Paving sent a “Private Works” Notice, it was, by definition, not compliant.
Second, Cal Paving’s fundamental misunderstanding about the public nature of the Project caused it to believe that it had a longer period of time to sue the surety. If it had been a private works project, Cal Paving could have had up to 4 years to bring its action against the payment bond. For public works projects that time period is significantly reduced.
By statute, in order to make a claim on a Public Works Payment Bond, a subcontractor has to give notice of its claim to the surety within 15 days of the recording of the Notice of Completion or, if there was no Notice of Completion, then the notice to the surety has to be made within 75 days of completion of the work. Thereafter, the sub must file its lawsuit against the Bond within six months of the last day that it could have filed a Stop Notice. This is not the case for claims against private works payment bonds. Cal Paving waited more than a year to file its action against the Bond.
Cal Paving may have been a subcontractor to the General that was hired by the developer, but that did not convert Cal Paving’s work from public improvement to private improvement. Cal Paving’s assumption that the type of project and the nature of the project determined how the project would be characterized and what rules and statute of limitations would apply was simply incorrect, and it paid the price.
The point to take from all of this is that it is essential to know who the Owner is and whether the project is a public or a private work of improvement. The two types of projects have many similarities but the differences are critical and must be understood. Be very clear who the parties are for all of the agreements that are upstream or downstream of your contract. Just because a project is seemingly a private development does not mean that it cannot be a public work of improvement. It can be, and if it is, there is a whole different set of rules that come into play. You need to comply with them; be sure you do.
Bio: John McGill represents general contractors and subcontractors in contract, claims, employment, and transactional matters in before administrative agencies and in judicial proceedings as well as in mediation and arbitration. He has been general counsel for a public works general contractor in Novato and Special Counsel at Archer Norris in Walnut Creek. His contact info is: jmcgill@archernorris.com- direct office - 925-952 5403 & cell- 707 337 1932.
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