With the construction sector still floundering, most construction is still taking place in the public sector. Unlike many private construction projects, on public construction projects the State of Nevada has seen fit to hedge against the possibility of lower-tiered contractors and material suppliers not getting paid by requiring general contractors and subcontractors to post payment bonds. Smaller contractors and material suppliers are generally the most vulnerable, and depend on timely payments to keep their doors open. When the general contractor or subcontractor fails to pay, it is critical for subcontractors and material suppliers to make a timely claim against the payment bond.
NRS Chapter 339, Nevada’s payment bond statute, is commonly referred to as the “Little Miller Act” because it is patterned after its federal counterpart, the “Miller Act,” 40 U.S.C. § 270. NRS 339.035 allows any claimaint who has provided labor, material or equipment to make a claim against the payment bond posted by a prime contractor, or other upstream contractor, if the claimant has not been paid within 90 days of the last time it performed work, or supplied materials or equipment on the project.
I. Subcontractor Claims
Subcontractors that have contracts directly with the general contractor who posted the payment bond are only required file a complaint with the distirct court if they have not been paid within 90 days from the last time they performed work, or provided equipment or materials on the project. Payment bonds generally contain provisions requiring the allowance of attorney’s fees if suit is filed to collect payment. Because of the attorney’s fees provision, sureties are often times willing to settle legitimate claims before the claimant files a complaint with the district court. Thus, before filing a complaint, the subcontractor should send a formal demand to the surety requesting payment of the amounts owed. The claim should contain a descriptoin of the work performed, the materials and equipment supplied, the amounts owed, and be supported by all necessary back-up documents (invoices, correspondence, etc.). The claim should be mailed to the surety via first class mail. If the surety fials to pay within 90 days, the subcontractor can file a complaint with the district court.
II. Sub-subcontractors and Materail Suppliers
In order to make a timely claim against the payment bond, NRS 339.035(2) requires sub-subcontractors and material suppliers that do not have contracts directly with the prime contractor to: (1) have sent a notice of furnishing labor, materials and/or equipment to prime contractor via certified mail within 30 days of first providing labor, materials or equipment on the project, and (2) send a notice of claim against the payment bond to the prime contractor at his place of business or residence via certified mail within 90 days from the last time they performed work, or provided equipment or materials. If the sub-subcontractor or material supplier is not paid by the surety within 90 days, he/she can file a complaint with the district court.
III. Bond Claims Cannot be Denied for Technical Non-Compliance
Bonds are generally issued by insurance companies, and insurance companies generally have one goal: to save as much money as possible by denying claims. Because of this goal, bond companies regularly deny legitimate claims based on technicalities. For example, if the sub-subcontractor fails to serve a bond claim via certified mail, or sends it to the wrong address, the bond company may deny the claim for non-compliance with NRS 339.035(2). Courts however have uniformly held that claims cannot be denied for technical non-compliance. Federal courts interpreting the Miller Act hold that it is “highly remedial and should be construed liberally.” Fleisher Eng’r and Constr. Co. v. United States ex rel. Hallenbeck, 311 U.S. 15, 17, 61 S.Ct. 81, 85 L.Ed. 12 (1940). So long as the relevant contractor receives “actual notice” of the claim within 90 days, the claim is valid. Id. at 17.
The Nevada Supreme Court has expanded the actual notice requirement even further. In Hardy Companies, Inc. v. SNMARK, LLC, 245 P.3d 1149 (Nev. 2010) the court reaffirmed the century old rule that, “the mechanic’s lien statutes are remedial in character and should be liberally construed; that substantial compliance with the statutory requirements is sufficient to perfect the lien . . .” Id. at 1155. The court went on to hold that even if a subcontractor fails to serve a preliminary notice of right to lien, “actual knowledge on the part of the property owner constitues substantial compliance” with the mechanic’s lien statute. Id.at 1157. Thus, if the owner has actual notice that the subcontractor or material supplier is working on or suppliying materials for a project, failing to send statutory notices will not bar the subcontractor or material supplier from filing and foreclosing on a mechanic’s lien.
Although the Hardy Companies case dealt with the interpretation of the notice provisions of Nevada’s mechanic’s lien statute, the ruling applies with equal force to NRS Chapter 339. As noted in Fleisher Eng’r and Constr. Co., 311 U.S. 15, the Miller Act is “highly remedial and should be construed liberally,” and actual notice of a claim within 90 days is sufficient to preserve the claimant’s rights to payment under the bond. Id. at 17. Because Nevada’s “Little Miller Act” is based on the Federal “Miller Act,” and the Nevada Supreme Court has long held that actual notice is sufficient to preserve a claimant’s rights to payment under the remedial lien statute, if confronted with the issue, the Nevada Supreme Court would probably hold that when the general contractor has actual notice that a sub-subcontractor or material supplier is working on the project, this is sufficient to satisfy the 30 day notice provision under NRS 339.035(2). Additionally, it is likely that Nevada Supreme Court would allow a sub-subcontractor or material supplier to maintain a claim against a payment bond if has not technically complied with the 90 day notice requirement in NRS 339.035(2).
If your payment bond claim has been denied by the surety, perhaps you should take a second look at the denial. NRS 339 allows a claimant to file suit within 1 year from the last time he/she last performed labor, or supplied equipment or materials on the project. If you have any questions about filing a claim against a payment bond on a public works project, please contact Shan Davis & Associates.
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