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Labor & Material Payment Bonds

     In the section on mechanic’s liens we learned that a mechanic’s lien may only be enforceable to the extent that a lien fund exists in the hands of the construction owner and for the benefit of the contractor at the time that the mechanic’s lien is filed. The lien fund serves as a restraint upon the ability of the lienor to recover through the foreclosure of a mechanic’s lien. Public works projects throughout the United States may be subject to the lien fund limitation. There is, however, another tool which an accounts receivable manager can utilize to secure recovery on public works projects and some private projects. That tool is the labor and material payment bond.

     Federal and State statutes typically require that a general or prime contractor on a public works project provide a labor and material payment bond. The purpose of the payment bond is to provide increased assurance that subcontractors, vendors and laborers will be properly compensated for their efforts. A labor and material payment bond is a surety’s undertaking. The undertaking runs to the benefit of the bond beneficiaries who are typically defined by statute. The statutes will typically define beneficiaries to include subcontractors, suppliers of material and laborers. The statutes run to different levels of beneficiaries. Some statutes might permit a second-tier subcontractor to be a claimant against the bond. Each statute will restrict the definition of beneficiary based upon the remoteness of the claimant/beneficiary to be bonded general or prime contractor.

This website may include sample portions of state law sections from the handbook. These are included to demonstrate the content of the handbook. These sections may not be current and should not be relied upon for information or advice.

STATE OF ARIZONA

Who may file: Any claimant who has furnished labor or materials. Ariz. Rev. Stat. §34–222.
Required: On contracts for the “construction, alteration, or repair of any public building, a public work or improvement of any county, city or town, or officer, board or commission thereof.” Ariz. Rev. Stat. §34–222.Also Contracts worth over $25,000 as governed by the Procurement Code. Ariz. Proc. Code §41–2574.
Time to notice: Subcontractors are not required to file any notice. Sub–subcontractors must provide two notices to the general contractor: (1) A preliminary notice within 20 days after the claimant first furnished labor or materials, and (2) must follow up with substantial notice in accordance with Ariz. Rev. Stat §33–992(c) within 90 days of when the last labor materials were provided on the contract. Ariz. Rev. Stat. §34–223.
Whom to notice: Principal contractor by certified or registered mail. Ariz. Rev. Stat. §34–223.
Time to file: No suit shall be commenced “after the expiration of one year from the date on which the last of the labor was performed or materials were supplied by the person bringing this suit.” Suit cannot be brought sooner then 90 days after last furnishing labor or materials. Ariz. Rev. Stat. §34&ndash223.