By: Alexander A. Miuccio Published: October 2014

Court Rejects Subcontractor's Payment Bond Claim for Interest, Storage and Fuel Costs

A labor and material payment bond is a bond issued by a surety company to guarantee that the laborers, material suppliers and subcontractors on a project will be paid in full. In most cases, payment bonds are required by law on public construction projects. Private owners may also require contractors to furnish labor and material payment bonds.

In the recent case of Northeast Restoration Corp. v T. A. Ahern Contractors Corp., the court reaffirmed that claims for extra-contractual charges are not recoverable under a payment bond.

Background

In 2006, T. A. Ahern Contractors entered into a prime contract to perform certain construction work for the New York City School Construction Authority. The SCA required, and Ahern furnished, a labor and material payment bond in connection with Ahern’s work at the project. Ahern subcontracted out the window portion of its scope of work to Caliber Window, Inc., which, in turn, sub-subcontracted with Graham Architectural Products Corp. to fabricate the required windows. Ultimately, when Graham remained unpaid, it filed a mechanic’s lien against Ahern’s contract.

Plaintiff Northeast Restoration, another of Ahern’s subcontractors, commenced this action to, among other things, foreclose its own mechanic’s lien. Graham was named as a defendant because of its mechanic’s lien. In response to being included in Northeast’s lawsuit, Graham filed cross- and counter-claims seeking to foreclose its mechanic’s lien and to recover under Ahern’s labor and material payment bond. Included in Graham’s claim against Ahern’s bond were interest, storage fees and fuel surcharges arising from Ahern’s postponement of the delivery and installation of the windows it manufactured for the project. Graham moved for summary judgment on this claim.

Decision

The court originally granted summary judgment to Graham on the issue of liability. However, upon a motion to reargue, the court reversed itself and denied its motion. In doing so, the court held that the surety’s obligations under a labor and material payment bond are limited to those undertaken in the bond and the bonded prime contract. The prime contract here between the SCA and Ahern did not provide for the recovery of interest, fuel surcharges or storage fees. Accordingly, the court held that such items were not recoverable under the term of the payment bond.

Comment

Here, the court reinforced the settled case law that damages recoverable under labor and material payment bonds are limited to items expressly set forth in the bonded (prime) contract. This holding should serve to remind bond claimants to obtain copies of the payment bond and the prime contract so that they can become thoroughly familiar with the bond requirements and be aware of the type of claims that are recoverable under the terms of the bond.

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