Lamson, Dugan and Murray, LLP, Attorneys at Law

Don’t Get Caught Holding the Bag: Hold the State Liable When General Contractor Fails to Pay on a Public Project.

Posted in Bond Claims, Breach of Contract, Construction Claims, Construction Law, Government Contracting, Lien Rights, Nebraska Construction, Payment Bond, Uncategorized

Holding the Bag

According to a quick Google search the term “holding the bag” comes from the mid eighteenth century  and means be left with the onus of what was originally another’s responsibility.  Nobody wants to be left holding the bag.  But that is the situation our client (subcontractor) found themselves in when upon completion of a public project the general contractor went out of business before paying the remaining amount due and owing to our client.

Under Nebraska law, liens are not allowed against public projects.  Instead the subcontractor is to make a claim on the payment and performance bond secured by the general contractor at the start of the project.  In our case, the general contractor never secured a bond on which to make a claim; consequently leaving our client holding the bag.

Fortunately, we were able to hand the bag back to the State and obtain full payment for the services and materials provided.

In Nebraska, when the State undertakes a construction project, the State is required to take from the contractor “a payment bond or bonds in a sum not less than the contract price with a corporate surety company and agent selected by the contractor…”  Neb. Rev. Stat. Sec.52-118(1).  Furthermore, “no contract referred to in this section shall be entered into by the Sate of Nebraska …until the bond or bonds referred to ….has been made, filed and approved.”  Neb. Rev. Stat. Sec.52-118(3).

So what happens if the State fails to abide by the statute?  The Nebraska Supreme Court has held that the state and any public entity has a duty ensure a bond is in place for the the benefit of the materialmen before entering into a construction contract.  Westinghouse Elec. Supply Co. v. Brookley.

Applying the statute and the Supreme Court’s decisions the District Court found the State violated its duty imposed by statute and sustained our action against the State for the full amount left due and owing.  In the end, the State was left holding the bag.  Good for our client, and possibly good for you if you find yourself in the same situation.

Please contact us if you would like a copy of the Court’s order.

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