Securing Payment From a Public Project Has Its Own Set of Rules

“Don’t worry, our payment is secure because this is a public project with public funds. Right ?”

Yes and No. It is only secure if you complied with certain statutory pre-notice requirements!

When you supply materials, equipment or labor for a public project (i.e. “ a construction project paid for with public funds”), you have certain extra statutory remedies to help ensure you receive payment. These remedies go beyond the typical contract rights your business has against the party with whom you contracted. These remedies consist of:

  1. New Jersey’s Municipal Mechanic’s Lien Law: Unlike on private projects where a construction lien is filed against the project property, suppliers need to assert a municipal mechanic’s lien against the monies due, or to become due, from the Public Owner to the General Contractor. If done properly, the municipal mechanic’s lien creates a “fund” against which the debt owed to the material or labor supplier will be secured, and ultimately paid.
  2. New Jersey’s Public Works Bond Act: A material or labor supplier or subcontractor additionally has rights under a statutory payment bond that the General or Prime Contractor is required to obtain as a condition to contracting with the Public Owner. The payment bond guarantees payment of the debt from its principal, the General Contractor, to the subcontractor or supplier.

However, simply knowing about these extra statutory remedies is not enough to protect your investment. You must take certain affirmative steps to protect your rights under both the Mechanic’s Lien Law and Bond Act. Failing to strictly comply with the multiple statutory pre-conditions will result in the complete loss of any available lien and bond rights.

These pre-conditions consist of, among other things, (i) complying with specific notice requirements prior to the first delivery of materials or labor to the project; (ii) filing notice of claim in a timely fashion once work has commenced and/or materials have been delivered to the project site and (iii) instituting suit within the established statutory time period.

In addition to rights under the Mechanics’ Lien Law and Bond Act, suppliers and subcontractors have rights under New Jersey’s Prompt Pay Act and New Jersey’s Trust Fund Act. The Prompt Pay Act enhances the obligation of the entity with whom you have contracted on a public project to pay you promptly for the services provided. The Trust Fund Act places a special obligation on the recipient of the funds to use them to pay suppliers and subcontractors for whom they have received payment. Violation of this Trust Fund Act can open the door to personal liability for officers and owners of a Contractor who does not appropriately utilize the trust funds received.

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