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A primer on performance and payment bonds

By Michael L. Fortney

Contents

What are the requirements for a claim on a public project?

Public Improvements

Prime contractors on a public improvement project must furnish a payment bond to the public authority, and thereby agree “to pay all lawful claims of subcontractors, materialmen, and laborers for labor performed or material furnished in carrying forward, performing, or completing the contract; and agree and assent that this undertaking is for the benefit of any subcontractor, materialman, or laborer having a just claim, as well as for the state, political subdivision, district, institution, or agency.”  ORC sec. 153.54(B)(2). 

In order to have a claim on a payment bond on a public improvement, the claimant must comply with ORC sec. 153.56.  The claimant must satisfy the following:

1. The claimant must have properly prepared and served a notice of furnishing on the prime contractor, unless

a. the claimant’s contract was for an amount equal to or less than $30,000, and 

b. the claimant has a contract directly with the prime contractor.

2. Not later than ninety days after the completion of the contract by the principal contractor and the acceptance of the public improvement by the public authority, the claimant must furnish the sureties on the bond a statement of the amount due to the claimant.

3. An action may be brought for the amount owed to the claimant 60 days after the notice given to the sureties and within one year of the date that the project was accepted by the public authority.

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What are the requirements for a claim on a private project?

Some owners may require prime contractors to furnish a payment bond.  Such a payment bond acts to secure payment to lower tiered subcontractors and suppliers by the prime contractor or surety.  

In the case of a private improvement, the restrictions contained in the payment bond and the contract with the owner govern.  The owner and prime contractor can agree to limit the claimant’s rights to those that the claimant has under ORC Chapter 153, although that is typically not done.

Typically, the requirement for a claim under a private improvement bond are:

1. Not later than ninety days after the claimant last worked or provided materials on the project, the claimant must notify the prime contractor and the surety of its claim on the bond.

2. An action may be brought for the amount owed to the claimant within one year of the date that the prime contractor ceased work on the project.

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