Who Says Actions Speak Louder Than Words?

Man With MegaphoneContractors who work in the public works arena are aware that under California Civil Code section 3247 [which will be recodified at Civil Code section 9550 beginning July 1, 2012], original contractors on public works projects with a value in excess of $25,000 are required to file a payment bond of not less than 100% of the amount payable under their contracts.

The payment bond is for the benefit of lower tier subcontractors and materialmen who may file a claim against the bond if they are not paid. However, not all lower tier subcontractors and materialmen may file a claim against a payment bond. Under Civil Code section 3248, only subcontractors and materialmen who were to be paid by the original contractor or a subcontractor or materialman of a subcontractor of the original contractor are entitled to bring an action on a payment bond. Thus, subcontractors or materialmen who were to be paid by a materialman of the original contractor are not entitled to bring such claims.

In Eggers Industries v. Flintco, Inc., 2011 WL 6020172 (December 5, 2011), the California Court of Appeals for the Third District held that in determining whether a contracting party was a 1st tier “subcontractor” or 1st tier “materialman” is determined by what the contracting party “agreed” to perform, not what it actually performed.

In Eggers, Flintco, Inc. (“Flintco”) was awarded a contract by the Regents of the University of California to build the Robert Mondavi Institute for Wine & Food Sciences at my alma mater in Davis, California. Flintco, in turn, entered into a contract with Architectural Security Products (“ASP”) to furnish doors and hardware pursuant to the plans and specifications of the project architect. ASP was not responsible for installing the doors and was only required to deliver the doors to the job site.

ASP, in turn, contracted with Eggers Industries (“Eggers”) to manufacture and deliver the doors and hardware. Eggers manufactured the doors and hardware and delivered them to the job site. After Eggers billed ASP for its work, which totaled $219,478.64, ASP only paid Eggers $51,697.03. Thereafter, Eggers filed a claim on Flintco’s payment bond for the balance owing of $167,781.61.

At issue was whether ASP, who neither manufactured nor installed the doors and hardware, was a “subcontractor” – in which case, Eggers could bring a payment bond claim – or whether ASP was a “materialman” – in which case, Eggers could not. Citing language from an earlier California Supreme Court decision, Thiesen v. County of Los Angeles, 54 Cal.2d 170 (1960), Flintco argued that because ASP did not “construct” anything on the project that ASP was a “materialman.” Eggers, also citing Thiesen, countered that because ASP “agreed” to perform a “substantial specified portion of the work” that ASP was a “subcontractor” and that it was irrelevant whether ASP performed that work itself or contracted it to Eggers.

The Court of Appeals agreed with Eggers, holding that the critical inquiry under Civil Code section 3248 was what a contracting party agreed to perform, not what it actually performed:

In our view, [under Thiesen] a person has “charge of” the construction of part of a project when that person has, by contract with the original contractor, agreed to provide that part of the construction, whether the person performs the construction himself, has employees perform the construction, or subcontracts with someone else for that person to perform the construction. It is the agreement to provide part of the construction, not who actually performs that of the construction, that gives one “charge of” that part of the construction and thus makes one a subcontractor.

So, apparently, actions do not speak louder than words, at least when it comes to claims by subcontractors and materialmen on public works payment bonds.

2 Responses to “Who Says Actions Speak Louder Than Words?”

  1. Pat

    Great article. Would this same analysis of subcontractor v. materialman apply to Public Contract Code section 4107 dealing with substitution of subcontractors by the general contractor. That is, if the general contractor makes a determination of materialman, is the general contractor free to substitute materialman without complying with section 4107?

    Reply

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