Unpaid subcontractors on federal government projects typically have payment bond rights that allow subcontractors to sue for payment to which they are entitled. There are many deadlines subcontractors must meet to preserve their rights under a payment bond. One deadline requires subcontractors to file a payment bond claim no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.

One year seems like plenty of time to file a payment bond claim, but you would be surprised how many subcontractors wait until the last possible second to file a payment bond lawsuit. That’s dangerous because it may subject an otherwise valid payment bond claim to the argument that it’s untimely because it wasn’t filed within one year of the last performance of the subcontractor’s work.

That’s exactly what happened in a very recent federal court case, United States ex rel. RCO Construction, LLC v. Federal Insurance Company. In that case,  a federal court judge provided one of the most thorough analyses of the one year statute of limitations for federal payment bond claims I have ever seen.

In RCO, a subcontractor sued a payment bond surety for amounts the subcontractor claimed it was owed for worked performed on a project. The surety filed a summary-judgment motion in which the surety argued that the subcontractor’s claim was barred under the one year statute of limitations.

In particular, the surety contended that the subcontractor’s last day of work was April 10, 2019 at the latest while the subcontractor asserted that its last day of work was April 13, 2019 at the earliest. The subcontractor filed its lawsuit on April 13, 2020, so if the subcontractor’s last day of work was April 10, 2019, as the surety contended, the subcontractor’s action would be barred as untimely by three days.

The court noted that a payment bond lawsuit must be brought “no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.” The court noted the difficulty of determining when the last of the labor was performed or material supplied.

To determine when the last day of work was, the court had to consider when work on the subcontractor’s “original contract” concluded. The court noted there were two views of how to determine a contract’s conclusion date:

(1) upon substantial completion of the contract; or

(2) upon completion of the original requirements of the contract (as opposed to completion of corrections or repairs).

The court noted that option two is the “majority approach,” and it “specifies that corrective work or repairs should not be factored for the statute of limitations calculation, because they cannot be considered part of the original contract.”

The court then noted factors that are analyzed to determine whether something was contained in the “original contract” rather than being a repair:

(1) courts review the contract language to determine if the work in question meets a particular contract requirement;

(2) courts look to surrounding evidence during the course of work that tends to clarify what tasks were considered to be necessary to the original contract;

(3) courts will consider when a final inspection occurs with the idea that work performed after a final inspection was repair work; and

(4) some courts have considered when the prime contract was terminated.

The court then concluded that all four factors weighed in the subcontractor’s favor or showed that there were genuine issues of material fact that precluded summary judgment. Specifically, the court noted that the contract did not clearly resolve the issue, the evidence did not definitively show whether work was performed on April 13, 2019, and the prime contract was not terminated until April 25, 2019.

The court also stated that although payroll records may have indicated that the subcontractor’s last day of work was no later than April 10, 2019, “payroll records alone are not determinative of the last day of labor.” Instead, payroll records are only one of many types of evidence that must be considered to make a finding as to a subcontractor’s last day of work. Since there were e-mail communications and affidavits indicating the subcontractor may have performed work as late as April 13, 2019, the potentially conflicting evidence would have to be considered at trial.

The court noted that factual questions, such as when was the subcontractor’s last day of work, are best left to the jury to determine. Since there were genuine issues of material fact regarding the subcontractor’s last day of work, the court denied the surety’s summary-judgment motion.

Bottom Line: If you are an unpaid subcontractor with payment bond rights on a federal project, do not wait to file a lawsuit until the last possible day or week. Instead, be proactive and file the lawsuit as early as practically possible. While this may rub the prime contractor the wrong way, you’re better off timely filing the lawsuit than risking the chance of your payment bond claim being barred under the statute of limitations.

If you have any questions about a payment bond claim, please feel free to reach out.

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