“Educating the Government Contracting Community”

$315K Worth of City Sewer Work Down the Drain

Subcontractors must contingency plan for how they are going to be paid on government contract projects. It is not good enough to inquire of the general contractor, "When will you issue checks on invoices?" Subcontractors on government construction contracts must know if performance and payment bonds are in place and need copies of those documents BEFORE they start work. And if there are not bonds in place, subcontractors need to know the mechanisms and procedures they have to follow to get paid under their contract and from the government if possible.

A sewer subcontracting company in Georgia spent 10 years trying to collect $315,000 it was owed on a municipal sewer project for which its general contractor had not obtained bonds. When that general contractor went broke, the subcontractor sued the city, claiming that it was on the hook for the $315K because the city failed to require the general contractor to provide bonding protection on the public works project. The subcontractor was in for a harsh lesson -- one that could have been avoided. And one all government contracting subcontractors must avoid.

Late Summer of 2005, a main sewer line collapsed in College Park, Georgia. The City contracted with a general contractor, Southern Products, to make immediate repairs to the sewer line. The contract required Southern Products to provide Performance and Payment Bonds. Southern Products subcontracted the majority of the project to Sekisui SPR Americas, LLC (the Subcontractor).

After one month, the scope of the work increased and the cost exceeded the initial estimate. The Subcontractor submitted invoices for the $315,000 in and extra work. Southern Products submitted the invoices to the City. The City paid Southern Products the full amount of the Subcontractor's invoices. But Southern Products never paid the Subcontractor for the extra work.

The Subcontractor sued Southern Products. But Southern Products ceased operations and became insolvent. The Subcontractor sued the City asserting the under Georgia Public Works law, the City had an obligation to require Southern Products to provide Performance and Payment bonding for the project and that by no doing so the City became liable to pay the Subcontractor despite having already paid the general contractor for the same work. Georgia statutes do support the Subcontractor's claim. See OCGA § 36-91-91. And the Subcontractor won their case against the City at trial.

But the City appealed. And on appeal, the Georgia Court of Appeals reversed the Subcontractor's victory. The City of College Park v. Sekisui SPR Americas, LLC, No. A14A1690, (Ga. App.) (March 20, 2015). The Georgia Court of Appeals held that another part of the Georgia Public Works law does away with the bonding requirements for projects that are undertaken on an emergency basis. OCGA § 36-91-22(e) was the basis of the Court's ruling. That statute directs that the Georgia Public Works requirements, including bonding requirements, do not apply to projects "necessitated by an emergency; provided, however, that the nature of the emergency shall be described in the minutes of the governing authority."

So what was the Subcontractor suppose to have done? In this instance, where there were no bonds required on the public works construction project, in Georgia, the Subcontractor actually had lien rights it could have exercised. But to do so required the Subcontractor to have known that its right to payment were governed by an exception to the normal course of government construction contract work. Without that knowledge, the Subcontractor slept on their rights and waived any chance they had at collecting from the City. And then spent 10 years in court only to learn that they never had a legal right to make a claim against the City for that money.

Be thorough in your understanding about how your company is going to get paid and what the rules are that govern all of the players on the chain of payment. Become a GCARL Member and we can ensure that you get the money that your company earned.

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