§10.3 Payment Statutes Applicable to Public Contracts

§ 10.3 PAYMENT STATUTES APPLICABLE TO PUBLIC CONTRACTS

Washington provides statutory payment protection for those persons and entities who perform work on state public works projects. Those projects are not subject to liens like private property projects are. Dep't of Nat. Res. v. Pub. Util. Dist. No. 1 of Klickitat Cnty., 187 Wn.App. 490, 349 P.3d 916, review denied, 184 Wn.2d 1006 (2015). Instead a laborer, subcontractor, or material supplier has a right of action against the contractor's payment bond and a right to recover against the contract funds retained by the public owner. Laborers are guaranteed to be paid prevailing wages. Both the general contractor and subcontractors have a right of prompt payment, and the general contractor has a right to timely issuance of a change order for the satisfactory completion of extra work. All of these protections are conditioned on compliance with statutory conditions that are described in the subsections below.

(1) Significant legislative history

In 1992 the Washington legislature substantially revised public works laws related to payment by passing SHB 1736 as Laws of 1992, ch. 223. SHB 1736 took a unique approach to existing legislation. Rather than amend existing statutes, it simply replaced them with new statutes and made each set of statutes applicable to contracts entered into before and after the effective date of the new statute. The following synopsis shows this approach.

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(2) Retainage (Ch. 60.28 RCW)

Chapter 60.28 RCW is the lien statute for public works. RCW 60.28.011 requires a public agency to retain a sum from the moneys earned by the contractor (not to exceed five percent) as a trust fund for the protection of all persons who perform labor or furnish supplies on the public work. Puget Sound Elec. Workers Health and Welfare Trust Fund v. Merit Co., 123 Wn.2d 565, 567-68, 870 P.2d 960 (1994), abrogated on other grounds, W.G. Clark Const. Co. v. Pac. Nw. Council of Carpenters, 180 Wn.2d 54, 322 P.3d 1207 (2014). The statute gives lien rights against the fund to the protected workers. Id. at 568;

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RCW 60.28.011(2). "[T]he clear purpose of [RCW 60.28.011] is to benefit those persons within the protected class." Keller Supply Co. v. Lydig Constr. Co., 57 Wn.App. 594, 600, 789 P.2d 788, review denied, 115 Wn.2d 1012 (1990). The statute also protects the state and insures payment of taxes, increases, and penalties imposed under Titles 50 (unemployment), 51 (industrial insurance), and 82 (B&O and excise) that may be due from the contractor. RCW 60.28.011(1)(a)(ii). The state is not subject to the claim notice provisions of the statute because its rights are protected by the notice of completion provided to it by the public owner. See RCW 60.28.021, .040, .051.

The contractor may submit a bond for all or any part of retainage. RCW 60.28.011(6). If the bond meets the requirements set forth in the statute, the owner must accept the bond and must release the retained funds to the contractor within 30 days of acceptance of the bond. Id. (The owner's option to reject a retainage bond for "good cause" was eliminated by Laws of 2015, ch. 280, §1.) Whenever the owner accepts a retainage bond, the contractor must accept a similar bond from any subcontractor or supplier from which the contractor has retained funds. Id.

A claimant must comply with the requirements of Chapter 60.28 RCW to recover from the retained percentage. Keller Supply Co., 57 Wn.App. at 598; RCW 60.28.011, .015, .030; see RCW 39.08.030. Claimants who supply materials to a subcontractor must provide a preclaim notice to the contractor as a condition to giving a notice of claim. RCW 60.28.015. The claimant must give notice of its claim within 45 days "of completion of the contract work, and in the manner provided by RCW 39.08.030." RCW 60.28.011(2); see RCW 39.08.030; Shope Enters, v. Kent Sch. Dist., 41 Wn.App. 128, 130, 702 P.2d 499 (1985). The claimant then has four months to file an action to foreclose the lien. RCW 60.28.030. If the claimant fails to file its action within the four-month period, it is barred from recovery against the retained percentage. Airefco, Inc. v. Yelm Cmty. Schs. No. 2, 52 Wn.App. 230, 233-34, 758 P.2d 996, review denied, 111 Wn.2d 1029 (1988); Shope Enters., 41 Wn.App. at 130; RCW 60.28.030. "The right to a lien ceases to exist when the designated period is over." Shope Enters., 41 Wn.App. at 131. "Lien statutes are in derogation of the common law and should be strictly construed." Airefco, 52 Wn.App. at 233. A prevailing claimant is entitled to recover reasonable attorney fees and costs. RCW 60.28.030.

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(a) Who are claimants under the retainage statute?

"Every person performing labor or furnishing supplies toward the completion of a public improvement contract has a lien" under the statute. RCW 60.28.011(2). "Person" is defined as "a person or persons, mechanic, subcontractor, or material person who performs labor or provides materials for a public improvement contract, and any other person who supplies the person with provisions or supplies for the carrying on of a public improvement contract." RCW 60.28.011(12)(b).

Notwithstanding this broad definition of claimants, Washington courts have interpreted the statute to bar claims from certain persons. A supplier of temporary labor services is not a covered claimant. Better Fin. Solutions, Inc. v. Transtech Elec, Inc., 112 Wn.App. 697, 51 P.3d 108 (2002), review denied, 149 Wn.2d 1010 (2003); Better Fin. Solutions, Inc. v. Caicos Corp., 117 Wn.App. 899, 73 P.3d 424 (2003). A material supplier to a material supplier to a general contractor has no claim rights under the retainage statute. Farwest Steel Corp. v. Mainline Metal Works, Inc., 48 Wn.App. 719, 731, 741 P.2d 58, review denied,109 Wn.2d 1009 (1987) (applying prior retainage statute, former RCW 60.28.010, to deny coverage).

(b) Who must provide a preclaim notice to the contractor, and what is the process?

"Every person, firm or corporation furnishing materials, supplies or equipment to be used in the construction, performance, carrying on, prosecution, or doing of any work" on a public works contract must provide the contractor with a notice in writing prior to filing a lien claim. RCW 60.28.015. The notice must:

Id. No suit may be maintained against the retainage unless this statutory section is complied with. Id.

The requirements of RCW 60.28.015 do not apply to first tier subcontractors who are in privity of contract with the prime contractor

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and apply only to lower tier subcontractors or suppliers supplying materials, supplies, and equipment. LRS Elec. Controls, Inc. v. Harare Constr, Inc., 153 Wn.2d 731, 107 P.3d 721 (2005). That is, a lower tier subcontractor who supplies both labor and materials is required to provide a preclaim notice as a precondition to pursuing recovery on its material claim against retainage. Id. at 743. "Materials" are articles that either actually have been incorporated into and become a part of the structure or have been delivered to the site for incorporation into the finished structure. Nat'l Concrete Cutting, Inc. v. Nw. GM Contractors, 107 Wn.App. 757, 661, 27 P.3d 1239, review denied, 145 Wn.2d 1027 (2001) (concrete cutting services are labor, not material, and no preclaim notice is required; any use of equipment or supplies was purely incidental to the labor of concrete drilling, sawing, and coring); Campbell Crane & Rigging Servs., Inc. v. Dynamic Int'l. AK, Inc., 145 Wn.App. 718, 186 P.3d 1193 (2008) (no preclaim notice is required for crane lifting services because the crane is equipment, not materials, and is integral with crane lifting services, which are labor).

(c) When does the period for submitting a claim of lien begin?

See §10.3(1), above, for significant legislative history. A key provision of SHB 1736 dealt with the time for providing notices of claims of lien against the retainage held on public works projects. The existing law at the time, former RCW...