Court Rules That Supplier Notices of Non-Payment Are Not RequiredLa. R.S. 38:2242(F) is the provision of the Public Works Act requiring an unpaid material supplier of a subcontractor to furnish a notice of non-payment to the general contractor and owner within 75 days from the last day of the month in which the materials were delivered. For general contractors, this notice requirement is a valuable tool by which the contractor can stay informed as to whether any subcontractors have failed to pay their suppliers during the course of a project. However, in August 2018, the First Circuit Court of Appeal held that material suppliers are not required to provide the 75 day notice in order to assert a payment claim against the general contractor and surety under the Public Works Act.
The case of Woodrow Wilson Constr., LLC v. Amtek of Louisiana, Inc., 2017-1156, 2018 WL 3719719 (La. App. 1 Cir. 8/6/18), involved a claim by a material supplier against a subcontractor, the general contractor, and the surety which furnished the payment bond on a public construction project. It was undisputed that the owner paid the general contractor for the materials. However, a dispute arose between the general contractor and the subcontractor, resulting in the subcontractor not receiving payment for the materials from the general contractor and subcontractor not making payment to the supplier.
After substantial completion of the project, the material supplier timely filed a statement of claim under the Public Works Act and later filed its lawsuit seeking to recover payment for the materials. Following a bench trial on the supplier’s claims, the trial court ruled that the subcontractor was obligated to pay the supplier for the materials but dismissed the supplier’s claims against the general contractor and surety. Specifically, the trial court concluded that the supplier did not have a claim against the general contractor or surety since the supplier failed to timely provide the 75 day notice of non-payment required by La. R.S. 38:2242(F).
On appeal, the First Circuit reversed the dismissal of the supplier’s claims against the general contractor and surety. The appellate court analyzed the specific language of the applicable statutes of the Public Work Act and held that a supplier’s failure to furnish the 75 day notice of non-payment only results in the supplier losing its right to a privilege against any unexpended funds in the possession of the owner. The court, however, determined that the supplier’s failure to provide the notice does not preclude the supplier from seeking payment from the general contractor and surety. The court stated that its interpretation of the statutes was consistent with the purpose of the Public Works Act, which is to protect those performing labor and furnishing materials for public works.
From a practical standpoint, this decision could result in suppliers no longer providing notices of non-payment to general contractors on public projects. Suppliers may conclude that the hassle of timely providing the notices is not worth of the benefit of preserving a privilege against any funds in the possession of the owner since the supplier can maintain a claim against the general contractor and surety regardless of whether it sends the notice of non-payment. As such, a general contractor may receive no notice throughout a project that a subcontractor has failed to pay a supplier, yet the general contractor can ultimately be liable to the supplier despite only learning of the unpaid amounts following substantial completion of the project. Of course, the effect of this decision on general contractors may be lessened by requiring subcontractors to furnish partial payment releases from suppliers with each progress payment. Nonetheless, the First Circuit’s ruling is significantly beneficial to suppliers and unfavorable to general contractors which previously relied upon notices of non-payment to stay informed as to whether any suppliers were unpaid during public construction projects.