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Mechanic’s liens provide security for nonpayment to subcontractors and suppliers on private projects. Because mechanic’s liens are not valid against property that is owned by the state or a municipality, the Little Miller Act (C.G.S §49-41 et seq.) was implemented to provide subcontractors and suppliers working on public works projects with a similar level of security.

Pursuant to the Little Miller Act, any contractor entering into a construction contract exceeding $100,000 for a public works project must provide the public owner with a payment bond “with a surety or sureties satisfactory to the officer awarding the contract.” If the public owner fails to receive such a bond, the statute provides that the public owner may be liable to unpaid subcontractors in accordance with C.G.S §49-42.

In a series of recent lower court decisions that involved multiple subcontractor claims in connection with the same project, the Connecticut Superior Court considered the level of investigation a public owner must perform on the surety company in order to find the surety to be “satisfactory” under the Little Miller Act. The court considered whether the public owner’s contracting officer fulfilled his obligation under the Act by merely confirming that a signed bond form was provided by the contractor. The contracting officer was unaware that the surety that issued the bond was not authorized/licensed to do insurance business in the State of Connecticut and that there were irregularities on the face of the bond and its attached power of attorney.

The courts concluded that finding a surety “satisfactory” requires more than a simple review of the bond as to form. The court determined that compliance with the Act by a public owner requires a focus on the surety issuing the bond and a consideration of substantive issues including:

  • whether the surety company actually exists;
  • whether the surety company is authorized or prohibited to do business in Connecticut; and
  • whether the public owner has actual knowledge of facts that might or should preclude characterizing the surety as satisfactory.

To comply with the Little Miller Act (and protect itself from liability), a public owner should perform a substantive review of the bond instrument and the bonding company to determine that the surety meets the conditions identified by the court. We recommend that this review include, at a minimum, a search of the records of the Connecticut Secretary of the State under the name of the surety and an inquiry of the Connecticut Insurance Commissioner to determine whether the company legally exists and is authorized/licensed to issue surety bonds in the state of Connecticut.

http://www.jdsupra.com/legalnews/court-finds-public-owners-responsible-14759

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