Public California payment bonds nontransferable to private contracts

California Payment Bonds

Recent court rulings in California are setting a precedent that payment bonds used on public projects cannot be transferred to private subcontracting jobs related to the same project. Roger Haerr of California’s Luce Forward law firm wrote an article for Lexology that analyzed recent court rulings regarding payment bonds and public private partnerships, or “P3” for short.

His analysis shows that government agencies will not apply the financial guarantees provided by public California payment bonds to private subcontractors working on the same project.

According to Haerr:

“Statutory rights and obligations under a payment bond or stop notice may also depend on whether the project is public or private. Moreover, the  failure to obtain a payment bond on a public work may create a claim  against the public entity for failure to fulfill a statutory duty.”

In a couple of recent trials, California courts have ruled that privately contracted subcontractors cannot make a claim on payment bonds following nonpayment, even if the work was on a public project that maintained a payment bond. The courts found that the subcontractors were contracted privately at the discretion of the contractor, and thus public payment bond coverage would not be transferred.

When such privately contracted subcontractors are left unpaid, there is little they can do to regain compensation for their unpaid work.