In the recent case of New England Carpenters Central Collection Agency v. Arch Insurance Company, the Massachusetts Appeals Court addressed a notice provision in the Commonwealth’s public construction payment bond statute, M.G.L. c. 149, § 29 (“Section 29”). The Court was asked to determine whether the two plaintiffs in the case, a carpenters’ union-affiliated collection agency (“NECCCA”) and the trustees of certain benefit plans represented by NECCCA, could recover subcontractor-labor benefits using the Section 29 payment bonds issued by the defendant, Arch Insurance Company (“Arch”), for two separate projects on which CTA Construction Company, Inc. (“CTA”) served as the general contractor. The question turned on whether the plaintiffs were deemed to have a “contractual relationship” with the general contractor within the meaning of Section 29.
Unlike the trial court before it, the Appeals Court found that the plaintiffs did have a contractual relationship with CTA, even though these parties did not actually contract with each other. This finding was crucial to the plaintiffs’ ability to proceed against Arch’s payment bonds, because they had not followed the Section 29 post-work notice requirements applicable when no “contractual relationship” with the general contractor exists. Since Section 29 does not impose a notice requirement on claimants with such a “contractual relationship,” the Appeals Court ruled, plaintiffs’ failure to provide post-work notice did not bar their claims.
By way of further context, the benefits in question had been collectively bargained among CTA, two of the subcontractors it retained on the projects, and the New England Regional Council of Carpenters. The subcontractors then allegedly failed to make fringe-benefit contributions required by the collective bargaining agreement (“CBA”). NECCCA notified CTA, the general contractor, of the subcontractor defaults, but did so before the subcontractors’ work was completed. This violated Section 29, which requires that such notice by claimants without a “contractual relationship” to the general contractor be provided only after a contractor’s work is completed.
After CTA and Arch rejected the plaintiffs’ claims, the plaintiffs filed suit against Arch in Superior Court, claiming that Arch’s payment bonds covered the unpaid benefits. Arch filed a summary judgment motion, arguing that because the plaintiffs were not parties to the CBA, they did not have the “contractual relationship” with CTA necessary to proceed against Arch without satisfying Section 29’s post-work notice provisions. A Judge of the Superior Court agreed, Arch’s motion was granted, and the plaintiffs appealed.
The discrete question before the Appeals Court was whether the plaintiffs had a sufficient “contractual relationship” with CTA, despite not being signatories to the CBA, to make a claim against the payment bond without following Section 29’s post-work notice requirements. Relying on earlier precedent indicating that Section 29 should be broadly construed to effectuate the Legislature’s desire to facilitate public construction payments and protect laborers and suppliers, the Appeals Court found that the plaintiffs and CTA did have a sufficient contractual relationship to negate the post-work notice requirements that would otherwise have sunk the plaintiffs’ claim against the bond.
In addition to Section 29’s broad remedial purpose, the Court relied on the third-party beneficiary concept. Under the law, when a party does not sign a contract, it can nevertheless benefit from the contract, if it was an intended third-party beneficiary of the contract. Although neither NECCCA nor the trustees were signatories to the CBA, they were granted specific rights under the CBA, including the right to recover unpaid subcontractor-laborer benefits from the general contractor CTA. Because the plaintiffs were granted specific rights under the CBA, they were intended third-party beneficiaries of the CBA and therefore had a contractual relationship with CTA. Thus, they did not have to follow the Section 29 post-work notice requirements (that would have been applicable if the plaintiffs did not have these direct contract rights) before making a claim against CTA or its payment bond – i.e., Arch.
The Appeals Court’s decision reinforces that the bonding requirements of Section 29 will be broadly interpreted in favor of the laborers and suppliers it was enacted to protect. While the language of the statute surely must be followed, any ambiguities in the statute will almost certainly be construed in favor of those seeking payment from a contractor or surety. Similarly, as in the New England Carpenters case, contractors and their sureties will have a difficult time prevailing with arguments relying on the absence of notice or other procedural requirements contained in the statute. As a result, they should pause and reflect before relying on form over substance.
If you have any questions about this decision, please contact Michael Sullivan or any member of Prince Lobel’s Construction group.
With many thanks to summer law clerk Michaela Zelandi for her assistance with this piece.