Construction Surety On Public Project Is Responsible for Payment to a Lower-Tier Supplier Even When Its Principal May Not Be

On May 9, 2014, the Alabama Supreme Court ruled that a general contractor’s status as mere purchasing agent for a public owner does not relieve the general contractor’s surety from its obligation to pay a subcontractor’s supplier under a Little Miller Act payment bond. Purchasing agent agreements between the general contractor and owner are common in Alabama to take advantage of a public owner’s tax-exempt status as a public entity. The agreement typically provides that the owner, not the general contractor, has the obligation to pay for all materials and supplies. In the case before the Supreme Court, a supplier to a subcontractor did not get paid and sued to recover under the general contractor’s bond. Relying upon an established principle of suretyship, the surety took the position that it had no obligation to pay if its principal, the general contractor, had no such payment obligation. The Alabama Supreme Court disagreed, finding that it did not matter what agreement existed between the owner and the general contractor (the bond principal). As long as the supplier could satisfy the four-part test set forth in previous cases for recovery under the Little Miller Act, the surety would be liable under its payment bond. You can read the full opinion here in: Johnson Controls, Inc. v. Liberty Mutual Insurance Company. To speak with a construction attorney regarding how this ruling may affect your project, or if you have questions about another construction issue, call one of Johnstone Adams’ construction attorneys toll-free at 1-866-732-3267, or use the contact function on our website.

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