Like many states, Tennessee law requires that a contractor performing work on a state or local project having a contract price of $100,000 or more to post a bond to secure the contractor’s payment for all the labor and materials used by the contractor, or any immediate or remote subcontractor under the contractor. T.C.A. §12-4-201. The purpose of the bond is to afford protection to both the government owner, as well as furnishers of materials and labor, since they have no lien rights on public land. Although by practice, many public project bonds are for the full value of the contract price, Tennessee’s “Little Miller Act” only requires that the bond be for no less than twenty-five percent (25%) of the contract price.
It is important to recognize a distinction in the actual form of bond that is issued, because the form of the bond can substantially alter the rights of a claimant and the claim procedure. Where the terms of the contractor’s bond contain only the minimum requirements of the statute, and no more, the bond is deemed statutory. This can be critical because under a statutory bond, the claimant must strictly comply with pre-suit notice and suit filing deadlines. Under a statutory bond, a claimant must provide written notice to the contractor or public official who let the contract within ninety days after the completion of the public work. T.C.A. §12-4-205. (It is completion of the project, not completion of the claimant’s work, which triggers the notice period.) Generally, notice given prior to completion is deemed premature, although a general contractor’s abandonment and insolvency prior completion enables earlier notice. The written notice must set forth the nature of the claim, an account of material or labor used in the contract, the unpaid balance, and a description of the improved property. The notice must be tendered by certified mail return receipt or hand delivery. While the statute does not require notice be given to the surety, the prudent course is to do so within the same form and timeline.
If, however, the bond gives the claimant greater protection than that provided by the statute, the bond is deemed a common law bond. Under a common law bond, the claimant need only comply with the terms of the bond, rather than the statutory notice requirements.
The statute also imposes a very short period for filing suit. If the bond is deemed statutory, suit to enforce a bond claim must be filed within six months following completion of the project, or the furnishing labor or materials. T.C.A. §12-4-206. Bonds often impose unique suit filing deadlines, and there is no statutory prohibition on such differing term. In one case, where the bond was deemed broader than the statutory minimums, but imposed no time for filing suit, it was held that the 6-year statute of limitations for contracts applied.
If a potential bond claim arises, it’s critical to obtain the bond and review its terms very carefully. The terms of the bond will dictate when and how a claim must be pursued, and conversely, how such claims may be defended. Failure to properly assess the bond terms may result in the loss of the only viable avenue to obtaining payment on a public project.
Photo: Rex Hammock