If you are a trade contractor or supplier working on Dunkin Donuts Park in Hartford, Connecticut, you have undoubtedly heard that the City of Hartford Stadium Authority (Authority) has terminated the developer and made claim against its insurer. Although the news reports are referring to the situation as an “insurance claim,” those reports are inaccurate. The Authority has submitted a bond claim. If your work is currently in limbo because of the Authority’s termination, your next steps depend upon how the surety that posted the subject bonds intends to respond.
As more fully explained below, there are different types of bonds that were most likely posted by the developer.
[T]here are important differences between performance bonds and commercial general liability contracts… The purpose of a performance bond is to guarantee the completion of the contract upon default by the contractor. Accordingly, suretyship is properly viewed as a form of credit enhancement in which premiums are charged in consideration of the fundamental underwriting assumption that the surety will be protected against loss by the principal.
Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 791-792 (Conn. 2013). In other words, unlike an insurance claim that will be paid if based upon a covered loss, a surety on a construction project agrees to guarantee the contractor’s performance but the surety expects that the costs associated with fulfilling those obligations will come from the project owner or its bond principal, the project’s contractor.
Because the Authority is an entity created by the City of Hartford, the construction of Dunkin Donuts Park (the Project), is a public works construction project subject to Conn. Gen. Stat. § 49-4. Conn. Gen. Stat. § 49-41 provides that “[e]ach contract exceeding one hundred thousand dollars in amount for the construction, alteration or repair of any public building or public work of the state or a municipality shall include a provision that the person to perform the contract shall furnish to the state or municipality … a bond in the amount of the contract …. for the protection of persons supplying labor or materials in the prosecution of the work.” Conn. Gen. Stat. § 49-41. Such bonds are typically referred to as “Payment Bonds” or “Labor and Materials Bonds,” and, because these bonds are being required by state law, they are also referred to as “Statutory Bonds.”
In addition to a Payment Bond, most owners also require their contractors to post a “Performance Bond,” which guarantees the actual construction of the subject project. In Connecticut, there is no statutory requirement for a Performance Bond on public works construction projects but almost all public projects have them. Thus, the construction of Dunkin Donuts Park is most likely subject to a Non-Statutory Performance Bond and a Statutory Payment Bond.
The main difference between non-statutory and statutory bonds is how they are enforced. A non-statutory bond is enforced in accordance with the terms and conditions written on the bond itself. A statutory bond is enforced in accordance with the terms and conditions of the subject statutes regardless of the requirements written on the bond form.
Based upon the assumption that the Authority is currently making claim against the developer’s payment bond, the construction of the project may resume after a brief hiatus. Most performance bonds allow the surety three options to address an owner’s claim as follows:
Have the subject project completed by the original contractor under the surety’s supervision;
Have the subject project completed by the surety acting as the general contractor; or
Have the surety fund the owner’s completion of the subject project.
The simplest thing for everyone involved is for the original contractor to complete the work under the surety’s supervision. If that happens, the delay in resuming the work will be short and there will be no changes to any of the downstream contractors and suppliers.
If the surety or the owner take over the Project, the delay will be much longer because the developer will need to be replaced. If the developer is replaced, the downstream contractors and suppliers may be replaced or they may have their contracts and/or purchase orders assigned to the new contractor. However, if they are replaced, the downstream contractors and suppliers are entitled to payment for work completed to date.
Regardless of any potential bond claim, all those who had contracts with the developer have the right to bring a breach of contract action against the developer for all the costs incurred prior to termination and, depending upon the wording of their contracts, they may also have a claim for wrongful termination. However, such claims may run into problems because the prompt payment statute on public projects requires payment to subcontractors and suppliers within 30 days after the general contractor’s receipt of payment from the owner, and the prompt payment statute do not provide subcontractors and suppliers with any rights against a public owner. Thus, in the case of this termination, the developer may claim that it does not have to fully pay all of its subcontractors and suppliers because it was not fully paid by the Authority.
As explained elsewhere in this blog, the status of “pay-when-paid” and “pay-if-paid” are murky in Connecticut. Therefore, if you are a subcontractor or supplier on the Project, until you know if, how, and when the Project’s construction will resume, it is important for you to protect your payment bond rights.
As stated above, the payment bond for the Project is a statutory bond. In Connecticut, in order to enforce your payment bond rights on a public project, you must:
Wait until payment has not been received “within sixty days of the applicable payment date”;
Serve “a notice of claim on the surety that issued the bond and [serve] a copy of such notice to the contractor named as principal in the bond not later than one hundred eighty days after the last date any such materials were supplied or any such work was performed by the claimant.”
“For the payment of retainage, … such notice shall be served not later than one hundred eighty days after the applicable payment date.”;
“The notice of claim shall state with substantial accuracy the amount claimed and the name of the party for whom the work was performed or to whom the materials were supplied, and shall provide a detailed description of the bonded project for which the work or materials were provided.”
“The notices … shall be served by registered or certified mail, postage prepaid in envelopes addressed to any office at which the surety, principal or claimant conducts business, or in any manner in which civil process may be served.”;
“If the surety denies liability on the claim, or any portion thereof, the claimant may bring action upon the payment bond in the Superior Court.”;
“In any such proceeding, the court judgment shall award the prevailing party the costs for bringing such proceeding and allow interest.”;
“The court judgment may award reasonable attorneys’ fees to either party if … it appears that either the original claim, the surety’s denial of liability, or the defense interposed to the claim is without substantial basis in fact or law.; and
“[N]o such suit may be commenced after the expiration of one year after the last date that materials were supplied or any work was performed by the claimant, except that any such suit solely seeking payment for retainage … shall be commenced not later than one year after the date payment of such retainage was due.”
Conn. Gen. Stat. § 49-42.
Of course, to follow this procedure, you will need a copy of the subject payment bond. In most cases, a copy of the bond can be obtained by simply asking the owner for a copy. If that does not work, there is a statutory procedure by which a copy may be obtained. Of course that procedure—along with the procedures described above—must be fully complied with in order to prevail on a claim.
In light of the foregoing, if you should have any questions regarding how to protect your rights with regard to Dunkin Donuts Park or any other public project, please give me a call.