Subcontract Language Waiving Right to Assert a Payment Bond Claim on a Public Construction Project is Unenforceable and Against Public Policy in Massachusetts

In the Press · August 2, 2012

Can a general contractor on a public
construction project include a provision in its subcontract agreement that
requires its subcontractor to waive its right to make a claim against the general
contractor’s M.G.L. c.149, § 29 labor and material payment bond? This was an
issue of first impression recently addressed by the Massachusetts Supreme
Judicial Court (SJC) in the case of John
J. Costa v. Brait Builders Corporation and another
, _______ Mass. ________
(August 1, 2012).

Brait Builders (Brait) was the general contractor
on a public school construction project. 
As required by statute, Brait posted both a performance and a labor and
material payment bond, each in the amount of its contract.  Brait then entered into a subcontract with
Costa & Son Construction (Costa) to perform site work on the project. During
the course of the job, disputes arose between Brait and Costa and ultimately,
Brait terminated Costa. Costa then sued Brait for breach of contract, unfair
and deceptive business practices under G.L. c.93A, and on its labor and
material payment bond.

After five years of litigation, the case was
tried to a jury. After the close of Costa’s evidence, both Brait and its surety
asked the judge to issue a directed verdict in their favor dismissing Costa’s
payment bond claim. They based their request on the following provision
contained in the Brait/Costa subcontract:

“In
the event that the subcontractor [Costa] does not provide performance and
payment bonds on a form acceptable to the Contractor [Brait], then the
subcontractor [Costa] waives its right to claim against
the Contractor’s [Brait’s] performance and payment bonds as provided to the
Awarding Authority.” (emphasis supplied)

The judge found that the quoted subcontract language
was clear and unambiguous, and because Costa had not posted performance and
payment bonds relating to its site work, it granted Brait and its surety’s
request and dismissed Costa’s labor and material payment bond claim. Costa
appealed the ruling and the Supreme Judicial Court agreed to consider the matter
on direct appellate review.

In rendering its decision, the SJC found that
there are strong public policy considerations behind the statutory requirement that
contractors post labor and material payment bonds on public projects. Among
them, the SJC found that bonds encourage both competitive bidding and timely
completion of the work. The SJC concluded that payment bonds on a public
project provide security to those who supply labor and materials for those
projects and that public policy prohibits a contractual waiver of a party’s
right to assert its statutory bond claim rights.

Contractors often attempt to shift risk
through creative contract provisions. The Brait
decision confirms that in Massachusetts, contractual language seeking to
prohibit a subcontractor’s right to assert a statutory bond claim is
unenforceable.

Hugh
Gorman is chair of the Construction Law Practice Group at Prince Lobel Tye LLP.
Attorneys in this group regularly represent owners, developers, contractors,
subcontractors, and suppliers in all aspects of private and public construction
law. You can reach Hugh at
hgorman@princelobel.com or 617 456 8093.