Public Bidding: Waiver of Rights Under Payment Bond Invalid

Contractors on public projects may not by private agreement waive or impose conditions upon the ability of sub-contractors to pursue payment under a bond required by state law, ruled the Supreme Judicial Court of Massachusetts in Costa v. Brait Builders Corp. et al.

The contract between the parties in Costa stated that the subcontractor’s right to claim under the general contractor’s payment bond would be waived unless the subcontractor provided its own performance and payment bonds for the project, the terms of which were subject to approval by the general contractor.   The subcontractor was subsequently unable to obtain its own bonds on the project.   After disputes on the project arose, the subcontractor filed a multi-count suit in Superior Court, and sought relief under the general contractor’s payment bond.    Finding the terms of the parties’ contract “quite clear,” the trial court dismissed the plaintiff subcontractor’s bond claims at the close of its case.

The question left to the SJC following the plaintiff’s appeal, therefore, was whether private parties on a public project could agree to waive, condition or otherwise limit the rights of a party to pursue payment under a statutorily-mandated bond.   Brait Builders, the general contractor, argued that the parties could enter into such an agreement, noting that unlike the Massachusetts mechanic’s lien statute — which explicitly prohibits waiver — the bond statute is silent on this issue.    Brait Builders also argued that the public policies supporting the bond statute — encouraging competitive bidding, and the swift completion of public projects — did not sufficiently outweigh the parties’ freedom to contract.

The SJC disagreed, stating that “it is undisputed that §29 [the MA bond statute] is an outgrowth of the mechanic’s lien statute, under which waivers are explicitly proscribed as against public policy.”   The Court also emphasized the bond statute’s “remedial purpose” of providing security to subcontractors who furnish labor and materials on public construction projects.

For contractors, then, the ability of a party to assert claims under a §29 payment bond is not “up for negotiation,” so long as the procedural requirements contained in the bond itself (regarding notice, venue, limitations period, etc.) are satisfied.   Any contractual “conditions” limiting or waiving a party’s ability to submit a bond claim will be struck down as violating Massachusetts public policy.

For more information on our firm, or any other construction law matter, please contact the attorneys at Mirageas & Avery, LLC.