Sometimes a subcontractor is just too far down the chain to make a claim on a bond. A recent Kansas cases illustrated that a sub-sub-subcontractor was not a claimant under a subcontractor’s bond and its claim was denied. I wonder if anyone looked at the bond to see which entities it would actually cover before the problem arose.
In Dun-Par Engineered Form Company v. Vanum Construction Company, the job involved work at Fort Riley Army base. Because it was a federal job, the general contractor was required to provide a bond, and under the Miller Act, the bond only provided protection down to the sub-subcontractor. The general contractor then required its subcontractors to obtain a bond, but Vanum, a subcontractor, did not obtain a Miller Act form bond. Instead, Vanum’s bond only provided bond coverage to those entities that contracted with Vanum. Dun-Par was hired by one of Vanum’s subcontractors, making Dun-Par a sub-subcontractor to Vanum.
The dispute in this case came down to whether Dun-Par was a claimant under the bond. The bond defined claimant as an entity having a direct contract with the principal or having valid lien rights which could be asserted in the jurisdiction where the project was located. There was no question that Dun-Par did not contract with Vanum, making the only question whether Dun-Par had lien rights.
The trial court found that Dun-Par did have lien rights under state law, even if a lien could not be filed on the federal project. The appellate court disagreed, finding that the jurisdiction of the project referred to the character of the project, here a federal project. Because liens could not be filed on the project, Dun-Par did not have valid lien rights.
This certainly seems to be an odd result. Vanum was required to get a bond and it did so. But, the bond was limited to those entities with whom it had entered into a contract. Do you closely review the bonds involved on your project before you sign on? Perhaps you should.