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Remedies Construction Companies Can Utilize in These Difficult Financial Times to Enforce Payment on Private and Public Construction Projects

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John W. Inhulsen
Foster Swift Construction Law News
September 2009

Operating a construction company in Michigan’s current business and economic climate is challenging enough without the additional burden of dealing with contractors who fail to pay subcontractors and materialmen promptly, or pay at all, for work timely completed on private and public projects. All too often this scenario repeats itself and it is the providers of materials and services on these jobs that suffer.

Many years ago, State and Federal elected officials recognized the disparate financial results subcontractors receive in these situations. To remedy these inequities, legislators created three statutes to be used by material and service providers as tools to protect their interests and ensure payment for work completed and materials provided on private and public projects: the Construction Lien Act, the Michigan Public Works Act, and the Federal Miller Act.

PRIVATE PROJECTS

With the intent of affording priority in the payment of laborers, contractors, and suppliers who provide the building blocks and physical efforts on a private construction project, the Michigan Legislature created the Construction Lien Act, being M.C.L. §570.1101 et seq. The Act was originally enacted in 1891 and substantially rewritten in 1981. The Act sets forth specific requirements for suppliers of material and labor on a construction project to follow in order to place a valid construction lien on a project; the

lien is against the real property and improvements being constructed. The lien takes effect as of the date of the first actual physical improvement, defined under the Act as the date that visible, on-site construction work has begun on the property, and takes priority over a mortgage interest recorded after the commencement of the work.

PUBLIC WORKS

The Michigan Legislature, in 1915, in an effort to fulfill the state’s basic policy to protect laborers and materialmen on public construction projects, created the Michigan Public Works Act, being M.C.L. §129.201 et seq. This Act was substantially revised in 1963. The purpose of the Public Works Act is to provide protection in the construction of public buildings because materialmen and contractors may not obtain a lien on a public building. As such, the Public Works Act requires the posting of performance and payment bonds by a general contractor before construction on a public building may commence. These payment bonds are solely for the protection of claimants supplying labor or materials to project. For claimants that do not have a direct contractual relationship with the principal contractor on the project, but have supplied material, a strict notice requirement exists by which the claimant shall not have a right of action against the payment bond unless the claimant serves notice on the principal contractor and the owner of the project within 30 days of first providing material, stating the nature of the material provided, the contracting party for the material and the delivery site of the material.

With regard to federal public works projects, Congress created the Miller Act, being 40 U.S.C. §270, to protect subcontractors and materialmen because state law lien and bond laws may not be asserted against federally-owned property and, therefore, normal state lien and bond remedies are not available in these cases. Under the Miller Act, persons furnishing labor and material on a project exceeding $50,000 in amount, and which "entails the construction, alteration, or repair of any public building or pubic work of the United States" may sue in federal court on the payment bond required of the contractor under the Act.

The Construction Law attorneys at Foster Swift are well versed in the above enforcement Acts and have the practical experience to assist your business in protecting its rights to prompt payment for your hard work.