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Southeast HVAC News Guest Column

Payment & Performance Bonds

by Stuart S. Zisholtz, Esq.

In the past, I have written various articles discussing the importance of knowing whether a payment bond has been procured for a particular construction project. Many times it is the difference between getting paid and not getting paid.

Every public project in excess of $200,000.00 requires a payment and performance bond. No exceptions to the rule are permitted. Unfortunately, the City of New York has unilaterally decided to substitute the mandatory requirement for a payment bond by incorporating its own contractual payment guarantee in the prime contract. The terms of the payment guarantee are more stringent then the requirements needed for a payment bond claim.

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For instance, in a payment bond claim, a subcontractor is not obligated to serve notice upon the general contractor or construction manager if it is in a direct contract with them. Yet, the payment guarantee requires notice of any claim within four (4) months of nonpayment. This time frame is a significant change from the payment bond requirements. If you do not meet the time frame, you may be barred from bringing a claim against the City of New York under the payment guarantee. Worse, unless and until the City of New York denies your claim, you are barred from filing a Mechanics Lien or instituting legal action against the City of New York for payment. According to the contract with the City of New York, the fi ling of a lien or the institution of a lawsuit will automatically forfeit any right to making a claim on the payment guarantee.

Luckily, the courts have been reluctant to enforce the stringent terms incorporated in the City of New York's contract which replace the payment bond requirements. Recently, the Court held that a subcontractor may pursue a claim against the City of New York for all sums due, notwithstanding the additional requirements and restrictions set forth in the City of New York's contract. It is clear, therefore, that the City of New York is unilaterally attempting to disregard the law to the detriment of the subcontractors and suppliers. It is imperative that you understand the terms and conditions of every contract and pursue your remedies when they are available to you. Never let your lien time run out!!

For a free copy of a pamphlet pertaining to mechanics liens and payment bond claims, kindly contact me or the association.





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