Louisiana Governor Jeff Landry recently signed two significant pieces of legislation into law: La. Acts Nos. 758 and 761. These acts represent a substantial shift in how payment bond defenses are handled for sureties under both the Public Works Act and the Private Works Act. What makes these changes particularly impactful is their specific implications for material suppliers.
As these new laws come into effect, they introduce crucial updates that alter the landscape for suppliers working on bonded construction projects in Louisiana. This article will provide an overview of these legislative updates, breaking down what has changed and exploring how these adjustments will affect suppliers navigating the payment process on such projects.
Legislative Overview
Though these acts apply to different statutes—La. Act No. 758 applies to the Private Works Act and La. Act No. 761 applies to the Public Works Act—their provisions are largely similar. Let’s break down how these changes impact the construction industry, and more specifically, material suppliers, in Louisiana.
- Sponsor: Sen. Greg Miller
- Effective Date: August 1, 2024
- Sponsor: Sen. Glen Womack
- Effective Date: July 19, 2024
New Defenses Available for Sureties
Expanded Defense Options
The first half of the changes implemented by these Acts deal directly with the surety who issued the payment bond on a Louisiana construction project. Here’s how this section reads:
Except as provided in Paragraph (2) of this Subsection, nothing in this Part shall be construed to preclude a surety from asserting any defense to the principal obligation that its principal could assert except for lack of capacity or discharge in bankruptcy of the principal obligor.
The new laws expand the defenses available to sureties. Specifically, they allow sureties to assert any defenses to payment available to a general contractor, except for lack of capacity or bankruptcy. This means that sureties can now use contractual provisions in the subcontract, including “pay-if-paid” clauses, as defenses against nonpayment claims.
What’s Changing?
Previously, Louisiana courts have rejected these defenses in cases where sureties tried to use the GC’s “pay-if-paid” clauses to avoid paying subcontractors. The new legislation seems to directly respond to this series of cases. The courts rejected these defenses because allowing sureties to do so would contradict the Private or Public Works Acts. No longer. Since they are codified in both Acts, sureties have more leeway to argue against payment based on contractual provisions in the GC’s subcontract.
But there’s a twist. Even though sureties are granted these additional defenses, there’s an important exception for material suppliers.
Exception for Material Suppliers
Why the Exception?
So, why material suppliers? The answer likely stems from the fact that payments to suppliers are generally more straightforward. Supplier payments are usually based on fixed costs for specific materials, unlike subcontractor payments, which can involve complex billing tied to project milestones and performance. Not to mention that suppliers have significant upfront costs to mobilize for a project.
What’s New for Material Suppliers?
Despite the introduction of additional defenses for sureties, there is an important carveout for material supplier claims for payment. Here’s a look at the language that is now incorporated into the Private and Public Works Acts.
(2) The surety is obligated and required to issue payment to a materialman for claims by a materialman under the following conditions:
(a) The claim for material delivered in conformity with material specifications provided in the order for such material.
(b) No sooner than forty-five days, the materialman sends a notice of nonpayment to the general contractor, surety, and the owner.
(c) The materialman has not been paid in full on or before ninety days after delivery of the material.
(3) If the requirements of Paragraph (2) of this Subsection are satisfied, the surety shall pay the materialman within tend days after the materialman sends a payment notice to the surety.
(4) The claim of a materialman and right to payment as provided in this Subsection is in addition to and not in derogation of any other rights, claims, or remedies available to a materialman in this Part.
*Terminology Note: La. Act No. 758 uses “seller,” while La. Act No. 761 uses “materialman.” For clarity, this article will use “materialman” to refer to suppliers of materials.
Step-By-Step Process for Material Suppliers
Let’s break this down into a step-by-step process to follow:
1. Deliver Conforming Materials: First, the supplier must deliver the materials in accordance with the order specifications. This means that the materials should meet the agreed-upon quantity and quality standards.
2. Monitor the Payment Timeline: After delivering the materials to the project, the supplier must wait at least 45 days before taking the next step. This provides the GC, owner, and surety the time to process and make payment.
3. Send Notice of Nonpayment: If the supplier hasn’t been paid in full on or before 90 days of delivery, they will need to send a formal notice of nonpayment to the GC, owner, and surety on the project. The notice should be sent by certified or registered mail, return receipt requested.
4. Payment Claim: After sending the notice of nonpayment, the supplier must issue a payment notice directly to the surety. Upon receipt of this notice, the surety is required to make payment to the supplier within 10 days.
5. Supplementary Claims: This exception is a supplementary right, meaning that this is an additional right, and does not negate any other claims or remedies the supplier may have under the Private or Public Works Acts; such as bond claims, contract claims, etc.
*Super Bowl™ Exemption: Under the Public Works Act, all contracts related to Super Bowl™ LIX preparation are exempt from these new provisions, except those exceeding $150,000. This exemption is valid until February 10, 2025.
In Summary
Louisiana’s new legislation marks a significant shift in how payment bonds are handled on construction projects. With the recent updates, sureties are now granted broader defense options, including the ability to invoke the general contractor’s payment clauses, such as “pay-if-paid” provisions. This change allows sureties to align their defenses more closely with those available to the general contractor. However, the new laws recognize that material suppliers play a critical role in the construction process and deserve extra protection to ensure they receive timely payments.
To address this, the legislation carves out special provisions for material suppliers. It introduces clear rules and deadlines that mandate timely payment from sureties to suppliers, once specific conditions are met. By setting these standards, the new laws aim to safeguard suppliers from extended delays and payment disputes, ultimately streamlining the payment process. This targeted approach ensures that those who provide essential materials for construction projects are compensated promptly and fairly, reflecting a more balanced and supportive framework for all parties involved in Louisiana’s construction industry.