Required Notification to Be Beneficiary Under a Payment Bond
In State, County, or Municipal projects, payment bonds are typically required of the general contractor, as the commercial Construction Lien Law is inapplicable to these projects. Copies of the payment bond are always provided to the relevant government agency, as well as to all direct subcontractors or suppliers with whom the general contractor has directly contracted.
On the other hand, copies of the payment bond are not typically provided to other subcontractors or material suppliers with whom the general contractor does not have a direct contractual relationship. In general, a subcontractor who has a direct contract with a subcontractor to the general contractor, or a material supplier who likewise has a direct contract with a subcontractor to the general contractor has a right to bring a claim against the bond in the event of non-payment. Before they are able to bring such a claim against the bond, however, specific notifications are required relevant statute.
N.J.S.A. 2A:44-145 provides a detailed procedure that a potential beneficiary of the bond must follow in order to be entitled to bring a claim against the bond should there be payment issues in the future. If this procedure is not followed, the right to file a bond claim could be waived entirely by the subcontractor or material supplier. The statute specifically states that any person who may be a beneficiary of the payment bond, as defined in this article and who does not have a direct contract with the contractor furnishing the bond shall, prior to commencing any work, provide written notice to the contractor by certified mail or otherwise, provided that he shall have proof of delivery of same, that said person is a beneficiary of the bond. The statute further explains that if a beneficiary fails to provide the required written notice, the beneficiary shall only have the rights and benefits available hereunder from the date notice is actually provided. On the other hand, if notice is never provided no rights to claim to the bond will ever accrue.
As to delineated by the statute, this is a very simple notification requirement by any subcontractor or supplier who does not have a direct contractual relationship with the party who posted the bond. This is a simple procedural step that should be taken by any subcontractor or supplier on a state, county or municipal project. It is suggested that the notification be done via certified mail, or overnight mail with signature confirmation. Also, the timing of this notification should be done prior to performing any work or providing any materials to the project. Under such instances, this would entitle the subcontractor or supplier to bring a claim against the bond. Should this party fail to provide such notification, they may later provide it, however, they would be limited to bond claims only from the date of notification thereafter.
As such, it is important that a subcontractor or material supplier follow the relevant state law as to notification to the contractor who provided the payment bond. If this contractor or supplier has any questions, they should consult with an attorney who can assist them in this regard.