January 2014 Volume XIII No. 1 Taking Care of Business
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Subcontractors on Public Works Projects Should Be Aware of Notice Requirements

Most contractors that perform work on public projects are aware of the special processes and requirements set forth under Indiana law for bidding on such projects. Many subcontractors whose bids are relied on by the general contractor are also aware of these laws. After the bid has been won, and the work completed however, how does a subcontractor ensure that it is paid for its work? The same statutory system that governs bidding also provides protections for subcontractors in certain circumstances. In a recent opinion dealing with this precise issue the Indiana Court of Appeals clarified two aspects of that statute.

Ind. Code § 36-1-12-12 requires that a public board withhold final payment to a general contractor until the contractor has paid the subcontractors, material suppliers, laborers, and others furnishing services for the project. I.C. § 36-1-12-12(a). In order to ensure payment, a subcontractor, material supplier, laborer, or person furnishing services is required to file a claim with the board not later than sixty (60) days after that person performed the last labor, furnished the last material, or performed the last service. I.C. § 36-1-12-12(b). If there is no dispute, the board is required to pay the subcontractor from the final payment funds withheld from the contractor. I.C. § 36-1-12-12(c). If there is a dispute, the board retains sufficient funds to pay the claim once the dispute is resolved. I.C. § 36-1-12-12(d).

Recently, the Court of Appeals addressed two aspects of the notice provision of the statute, whereby subcontractors must file a notice of claim with the board not later than sixty (60) days after their last work on the project. In City of Fort Wayne v. Consolidated Electrical Distributors, a subcontractor (Consolidated) provided materials for a public lighting project. City of Fort Wayne v. Consol. Elec. Distribs., 2013 Ind. App. LEXIS 577, 2 (Ind. Ct. App. Nov. 20, 2013). At the end of the project, the city paid the contractor, but the contractor did not pay Consolidated. Id. Consolidated sent a notice of non-payment to the Mayor of Fort Wayne. Id. The City refused to pay Consolidated because it had already paid the contractor. Id.

The City raised two issues with respect to Consolidated’s notice. First, it claimed that because the statute required a notice of claim to be served on the board, Consolidated’s notice to the mayor was insufficient. Id. at 5. Second, the City claimed that the notice was not timely under the sixty day requirement in the statute. Id. at 8.

With regard to the City’s claim that service of the notice of claim on the mayor did not comply with the statute, the Court of Appeals reviewed the entire statute governing public works projects and harmonized the various statutory definitions that impact the meaning of the term “board”. Id. at 6-7. “Board” is defined by the statute as “the board or officer of a political subdivision or an agency having the power to award contracts for public work.” I.C. § 36-1-12-1.2(1). Based on this definition, and the other statutory definitions applicable, the Court of Appeals determined that service on the mayor of Fort Wayne, as an officer of a political subdivision, was technically proper under the statute. Id. at 8.

With regard to the City’s other claim, that Consolidated’s notice was untimely, the Court examined the City’s earlier written admission that “during the period from on or about December 14, 2010, through February 7, 2011”, Consolidated had supplied materials to the general contractor. Id. at 8-9. The statute requires the notice of claim to be served by the subcontractor not later than sixty (60) days after the subcontractor last furnishes material for the project. I.C. § 36-1-12-12(b). The City claimed that its admission did not expressly state that Consolidated furnished materials on February 7, but rather that Consolidated furnished materials during that date range specified. Id. at 9. The Court of Appeals, however, held that because the City admitted that materials were furnished “through” February 7, it could not exclude February 7 from the date range. Id. The Court held that Consolidated’s April 6, 2011 Notice of Claim was timely, as it was served fifty-seven (57) days after February 7. Id.

Analyzing the two major holdings in the Consolidated Electrical case reveals two important aspects of the public works projects statute that subcontractors should understand before concluding the performance of their work on such projects. First, subcontractors should recognize that while notice directly to the Mayor of Fort Wayne was sufficient in the Consolidated Electrical case, there are many cases in which the mayor or other similar executive officer will have little to no knowledge regarding the specific project. While the notice may arguably be technically proper, it could result in lengthy delays in processing the claim. A better strategy may be to provide notice compliant with the statute, such as to the board itself or an officer, and also to a city official familiar with the specific project. This may speed up the claim process, or at least improve the likelihood that the claim is received by someone whose job it is to address such claims.

Second, the timeliness issue raised in the Consolidated Electrical case demonstrates the need to keep precise and detailed records of all dates on which work or materials were furnished. The City’s admission was enough to establish that the notice was timely served in Consolidated Electrical, but in the absence of that admission, the subcontractor would have been required to demonstrate that it served its notice not less than sixty (60) days after it last furnished materials. Given the relatively short sixty (60) day window allowed by law, subcontractors must not only be aware of the time requirement, but must also be certain that they calculate their time window appropriately based on the final date of work or furnishing of materials.

Failure to comply with either of the aspects of the notice requirement as set forth above may seriously hamper, if not completely foreclose, a subcontractor’s ability to obtain payment from the city or municipality when the contractor fails to make the payment.

If you have questions regarding the statutory notice of claim for public works project or other similar issues, contact your Hoeppner Wagner & Evans LLP relationship attorney.

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