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Contractor Entitled To Relief Under Sub's Payment Bond

Tuesday, June 05, 2012 02:59 am


Bonds -- Subcontractor

Dobson Bros. Constr. Co. v. Ratliff, Inc., 2012 U.S. Dist. Lexis 49889 (D. Neb. April 10, 2012)

A general contractor that takes over work from a defaulted subcontractor may make a claim for relief under a payment bond--if the bond language specifically allows.

General contractor Dobson Brothers Construction Company (Dobson) executed a subcontract under which Ratliff, Inc. (Ratliff) agreed to install sewer and water lines on an Oklahoma Department of Transportation highway project. Dobson subsequently terminated the subcontract for default and made a $2.2 million claim on Ratliff's performance and payment bonds. The surety that issued the bonds, American Contractors Indemnity Company (ACIC), argued that Dobson could not state a claim under the payment bond as either a claimant or a subrogee. As to performance bond recovery, ACIC asserted that Dobson failed to meet the conditions precedent that would trigger ACIC's liability.

Payment bond: No direct contract with bond claimant necessary

The parties' subcontract allowed Dobson to supplement Ratliff's work upon Ratliff's default, which Dobson did. ACIC argued that Nebraska courts "have consistently held" that contractors that take over a subcontract upon a sub's default are "barred from asserting a payment bond claim" because such bonds are intended to protect those who provide labor, materials, and equipment--not the obligee of the bond. See Cagle, Inc. v. Sammons, 198 Ne [...]

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