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Subcontractor’s Claim against City Barred by City’s Compliance with Georgia Payment Bond Statute

In a recent Georgia Court of Appeals case, the Court was tasked with determining whether the City of Atlanta’s compliance with the Georgia Payment Bond Statutes barred a subcontractor from recovery against it after the general contractor failed to pay and the surety became insolvent.

Squared Plumbing Co., LLC (J. Squared), was a subcontractor on a project to clean up sewage spills in approximately 100 dwellings for the City of Atlanta. As required by the contract executed with the City, the general contractor, Scott and Sons Holdings, LLC (Scott and Sons), obtained a $200,000 payment bond from its surety, First Seaford Surety, Inc. (First Seaford). J. Squared sought to collect on the payment bond when Scott and Sons failed to pay J. Squared for the work it performed on the project.  However, First Seaford became insolvent.  J. Squared subsequently filed a claim against Scott and Sons and the City to recover $140,000 for its work on the project.

J Squared asserted that the applicable bond statutes, O.C.G.A. §§ 36-91-90 and 36-91-91, did not bar it from maintaining its action against the City.  The trial court disagreed and granted the City’s motion for summary judgment because J. Squared’s only remedy was under the bond statutes and the City adequately complied with them.  The suit against Scott and Sons was dismissed for J. Squared’s failure to perfect service.  J. Squared appealed the trial court’s grant of summary judgment.

On private projects, subcontractors and materialmen can maintain a claim of lien against the owner as well as pursue a claim against the general contractor.  On public projects, however, liens cannot be filed on property owned by the government.  Therefore, a subcontractor’s only alternative is to make a claim on the general contractor’s payment bond.

O.C.G.A. § 36-91-40(a)(1) requires that payment bonds be approved and filed with the treasurer of the obligee and if the surety is not authorized to do business in the state, the government can demand that the surety be listed on the Unites States Department of Treasury’s list of approved bond sureties.  Plus, under subsection (a)(2), required payment bonds must be “approved as to form and as to the solvency of the surety” by an officer of the contracting governmental entity.  If the payment bond does not comply with the statutory requirements, the corporation or entity for which work is done shall be liable to all subcontractors performing work or servicing materials on the project.

The Court noted that when the City complies with the applicable statutes, “it is not required to make any further investigation into the proprietary of the information presented on the face of the bond,” and the subcontractors action against the City “will be defeated notwithstanding the subsequent inefficacy of the bond.”  DeKalb County v. J & A Pipeline Co., 263 Ga. 645, 649-650 (1993).

In this case, the bond met all of the statutory requirements.  It was approved as to form by the Associate City Attorney, the City’s Chief Financial Officer, and the City’s Risk Management Analyst.  Scott and Sons also presented evidence of First Seaford’s bonding capacity and the City confirmed that First Seaford was certified through the United States Department of Treasury.  As a result, the City’s compliance with the statutory requirements barred J. Squared’s action against the City.  Accordingly, the Court affirmed the trial court’s grant of summary judgment.