Claims against payment bonds may be denied on both private commercial and public works projects absent a claimant’s proper registration with the Utah State Construction Registry (“SCR”), labor wage claims excepted. Understanding the SCR process and procedure will aid the surety’s representative in determining the validity of claims. This article highlights the SCR bond procedures applicable to public works and private commercial projects.
The SCR is an exclusive statewide electronic database or online “bulletin board” created to identify those parties who provide labor and materials to a construction project. This enables interested parties to assess exposure and minimize risk. The SCR is applicable to payment bonds, which are required on public works projects and non-residential commercial projects with a contract amount exceeding $50,000.
To recover against a payment bond, the bond claimant must comply with “preliminary notice” filing requirements with the SCR. The duties of a bond claimant to file a preliminary notice with the SCR vary depending upon whether the construction project is public or private.
PUBLIC WORKS
A payment bond claimant, except a person performing labor for wages, must file a preliminary notice with the SCR only when a “Notice of Commencement” has been filed on a public works project. Utah Code Annotated 14-1-20 and 63 G-6-506. A Notice of Commencement is filed by the owner, original contractor or owner-builder within 15 days after commencement of physical construction.
The bond claimant’s preliminary notice must be provided as prescribed by UCA 28-1-32.5, which is part of Utah’s Mechanic Lien Law. This notice must be files within 20 days of the latest occurring event: (a) commencement of their work or the commencement of furnishing labor, service, equipment, and material to a construction project; or (b) the filing of a notice of commencement, if the subcontractor commences work before the filing of the notice of commencement. UCA 38-1-32.5 Any claimant the SCR may not make a bond claim. UCA 63G-6-506.
When a claimant fails to file a preliminary notice within the 20-day period, the claimant can still recover, but the claimant (a) must file a preliminary notice; and (b) cannot recover for any labor or materials supplied prior to the effective filing of the preliminary notice (the notice is effective five days after filing). UCA 38-1-32(b) provides that “if a person files a preliminary notice after the period prescribed by [UCA 38-1-32(1) is precluded from maintaining any claim for compensation for performance of labor or service or supply of materials or equipment before the expiration of the five days after the late filing of the preliminary notice. UCA 28-1-32(c).
PRIVATE WORKS
An “owner” of a non-residential construction project exceeding $50,000 is required to obtain from the “contractor” a payment bond in the sum equal to the original construction contract. UCA 14-2-1(2). “Owner” is defined as any person contracting with the original contractor for construction, alteration, or repair of any building, structure, or improvement upon land. UCA 14-2-1(1)(c). “Contractor” is defined as “any person who is or may be awarded an original commercial contract for the construction, alteration, or repair of any building, structure, or improvement upon land.” UCA 14-2-1(1)(b).
A bond claimant must file a preliminary notice with the SCR or its claim is invalid, labor for wages excepted. UCA 14-2-5. Prior to August 2011, the preliminary notice filing was required only if a “notice of commencement” was filed, similar to public projects. The “notice of commencement” requirement is now eliminated. Preliminary notice must be filed as prescribed by UCA 38-1-32, which is part of Utah’s Mechanic Lien Law. As to bond claims, subcontractors and suppliers must file a preliminary notice with the SCR within twenty days after the person commences furnishing construction service to the project or the recordation of a mortgage or deed of trust. UCA 38-1-32(2)(a)(i) and (ii). The filing of a late preliminary notice is effective five days after filing, but recovery is precluded for labor and materials previously provided. UCA 28-1-32(2)(c).
LEGAL ACTION AND THE PRELIMINARY NOTICE
A bond claimant must commence legal action within one year of last supplying labor and materials. “Any person who fails to provide the preliminary notice required … may not make a payment bond claim …” UCA 14-2-5(2); UCA 14-1-20(2). However, “the preliminary notice required … shall be provided prior to the commencement of any action on the payment bond.” UCA 14-2-5(3); UCA 14-1-20(3). Some claimants therefore assert that the preliminary notice in a legal action against a payment bond only needs to be filed prior to the commencement of the legal action and not within the 20-day period described above. There is no published court decision regarding this issue. The more reasoned argument is that failure to timely file the preliminary notice defeats a bond claim. At a minimum, the claimant would lose entitlement to payment for a labor and materials provided prior to the effective date of the preliminary notice.
Conclusion: The Surety representative should verify with the SCR that preliminary notice requirements are satisfied on any public works project or non-residential project in excess of $50,000. It pays to know your rights.
