Payment Bond Claims on Public Projects
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Pay and Stop Notice Handbook
This commentary is
designed to be used with the
Public
Project Bond Worksheet. You may wish to attach a worksheet to each public
works job file.
In comparison to
mechanics’ and materialmen’s liens, the steps required to preserve the right to
sue on a public works payment bond are fewer; however, they are critical.
If you miss a deadline, you forfeit your right to payment from the surety. Therefore, note the date of each step on the worksheet, and calendar the next
deadlines to preserve your rights as beneficiary on the bond.
The Arizona law relating
to contractor claims on public buildings and improvements (A.R.S.
§§ 34-222 et seq.) is known as the “Little Miller Act.” It is patterned
after and generally consistent with the federal Miller Act, which governs
contractor claims on federal buildings and improvements.
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Immediately upon
contracting, send a written request for information. Send the general contractor a written request for the information
you will need for your Preliminary 20-Day Notice and for information on the
project payment bond.
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Serve the
Preliminary 20-Day Notice.
A.R.S. § 33-992.01(B) requires service of the written Preliminary 20-Day
Notice of lien to: (a) the owner or reputed owner, (b) the
original contractor or reputed contractor, (c) the construction
lender or reputed construction lender, and (d) the person with whom
he contracts.
Send a copy of the Preliminary 20-Day Notice to the payment bond surety as
well. In fact, the bond itself may require you to serve the surety.
When you receive a copy of the payment bond, review it carefully to make
certain that you understand all the conditions for payment.
Prepare the Preliminary 20-Day Notice and serve it in the same manner as
described in the discussion of
mechanics' liens, by either first-class mail with a certificate of
mailing, registered mail, or certified mail, postage prepaid, and addressed
to the business or residence of the party served.
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Prepare Affidavit
of Service. You must be able to prove that you served the Preliminary
20-Day Notice. The notice form contains an "acknowledgment of receipt." In
the event you do not receive the acknowledgments within thirty days,
however, prepare an affidavit of service stating the time, place and manner
of service. It’s a good idea to prepare the affidavit of service at the same
time you serve the Preliminary 20-Day Notice, while the information is
fresh.
Note that the certificate of mailing or mail receipt must be attached to the
affidavit (A.R.S.
§ 33-992.02). Keep the affidavit in a safe place with a copy of the
Notice and the U. S. Postal Service certificate of mailing or delivery
receipt.
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Exceeding the
20-Day Notice amount. When the value of the labor or materials you
provide exceeds the 20-Day Notice amount by 20% or more, you must serve a
supplemental 20-Day Notice.
The initial Preliminary 20-Day Notice will protect your lien rights only up
to 120% of the amount stated in the notice. If the value of your labor or
services exceeds the amount stated by more than 20%, you must prepare and
serve a supplemental Preliminary 20-Day Notice within 20 days. Serve the
supplemental notice in the same way that you served the initial 20-Day
Notice (see Steps 2 and 3 above).
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Record the last
date when you provide labor or materials under your contract. This date
is critical because it determines the deadlines for the 90-day notice and
for filing a lawsuit on the bond. Work done solely to effect repairs, make
corrections, or complete a final inspection does not qualify as work on the
original contract and will not extend the deadline. Make certain that you
have completely performed your contract, and record the date when you
complete performance. Then calculate the 90-day deadline for serving your
90-day notice.
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Serve your 90-day
notice within 90 days of completing work. Subcontractors and material
suppliers covered by the Miller Act who do not have a contract directly with
the general contractor must give a 90-day notice within 90 days after
performing work or providing materials under their original contract.
Note that work done solely to make repairs or corrections or to complete a
final inspection does not qualify as work on the original contract, and it
will not extend the deadline. Keep good evidence, such as time sheets,
superintendent's log, and photos of your last day of work.
Serve the notice in the same manner as provided for 20-day preliminary
notices (see Step 3 above) by either first-class mail with a certificate of
mailing from the U.S. Postal Service, registered mail, or certified mail, postage prepaid, and addressed
to the business or residence of the party served.
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File an action on
the payment bond within a year. The time for filing a lawsuit on the
payment bond expires one year after the last day on which you perform work
under your contract, as described in Step 5 above. If you are an early
provider on the project, this deadline may arrive before the project closes
and retention monies become due.
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