A. Introduction
Liens on State and local governmental projects are fundamentally different from liens on privately owned property. They are different not only in the statutory procedures for asserting and enforcing them, but also conceptually. Contractors do not have liens on public projects. Mechanics liens to recover for work done on State and local governmental projects are governed by Section 231 of the Mechanics Lien Act. For the most part, the other sections of the Mechanics Lien Act do not apply to liens on public projects.2 Only "persons" who furnish lienable work, materials, or equipment "to a contractor having a contract for a public improvement with the State or for a unit of local government" can have liens. These liens only exist on funds due or to become due the contractor from the public body. They are not liens against real estate or other property of the public body. As a general rule, Section 23 is the only section of the Mechanics Lien Act that applies to liens on public funds.3 However, where the purpose of an amendment to the Mechanics Lien Act is to bar a practice declared to be against public policy, and the amended section states that it applies to "any right to enforce or claim any lien under this Act," the amendment will apply to liens on public funds under Section 23.4 Also, it has been held that, because the words "contractor" and "subcontractor" appear both in Section 1 and Section 23, some provisions of Section 1 can also apply to Section 23.5
Subcontractors also have bond claims for work done on State and for local government public projects under the Public Construction Bond Act6 (the "Bond Act"). Contractors who have contracts for public improvements for more than $50,000.00 are required to furnish payment bonds with sureties to assure payment of all just claims for labor performed or materials furnished in the performance of the contract when such claims are not satisfied out of the contract price after final settlement with the State or unit of local government.7
The requirements of The Bond Act and Section 23 of the Mechanics Lien Act (referred to in this Chapter as "Section 23") are different from each other. In some cases, a bond furnished pursuant to the Bond Act will have terms that are different from the Bond Act's requirements. If the bond furnished by the contractor includes provisions that are more favorable to the subcontractor than the statutory bond required by 30 ILCS 550/1, the more favorable provisions will control. In such a case, the principal and surety will be deemed to have waived the provisions of the statute that are less favorable to the subcontractor.8 "Although the express provisions of the statute are deemed to be contained in every bond for a public construction project, whether actually inserted in the bond or not, the contractor and its surety are free to contract with the public entity for additional liability which exceeds the statutory provisions."9
Section 23 is construed strictly in derogation of the common law.10 But The Bond Act is construed liberally.11 This is especially true when it comes to the technical requirements of notice under the two Acts. However, some courts have eased up on technical deficiencies where the notice of lien was served in good faith upon a public official other than the person designated to be served under Section 23.12
One major difference between liens for work on private property and liens and bond claims under Section 23 and the Bond Act is that contractors cannot assert lien or bond claims on public projects. A Section 23 lien attaches to the money due or to become due the contractor. A claim under the Bond Act is against a bond where the contractor is principal. A contractor asserting a claim under Section 23 would be attaching his own property. If a contractor sued on the bond, he would be suing himself.
Many attorneys enforce the lien on public funds but ignore the remedy under the Bond Act. Because it is one of the goals of this book to help lawyers, especially young and inexperienced lawyers, learn and use both statutory remedies, they are being discussed in a single chapter. The goal is: (1) to call both remedies to the attention of all practitioners; (2) to explain the requirements for each remedy; and (3) to explain the differences between them and mechanics liens on private property.
Both Section 23 of the Mechanics Lien Act and Sections 1 and 2 of the Public Construction Bond Act have been amended in the last several years. The Bond Act was amended by amendments effective in 2008, 2010, 2012, 2013, and 2014. Section 23 was amended by amendments effective in 1992 and 2007. All of these amendments made substantial changes to these Acts making many judicial decisions irrelevant in whole or in part to the meaning of the current statutes. Therefore, in reading cases, it is important to determine whether their holdings and dicta are consistent with the current version of the applicable statute. In order to avoid confusion, the earlier versions of Section 23 and the Bond Act and the cases based upon them will not be cited or discussed unless they are consistent with the current versions of these two statutes.
B. Definitions Under Section 23 of the Mechanics Lien Act
Definitions are very important in interpreting Section 23 and the rules applicable to liens on public funds. Some of the statutory definitions are relatively new, but all of them have significance. In addition, there are some terms in Section 23 that are not defined in the statute.
1. Contractor
Section 23 states that the term "contractor" includes any subcontractor. According to Koenig v. McCarthy Const. Co.,13 the legislative intent of this language is "to allow a lien to any person who shall furnish material, apparatus, fixtures, machinery, or labor to any contractor (i. e., either an original contractor or a sub-contractor) having a contract for public improvement." Thus, secondary subcontractors are entitled to liens on public funds. Aluma Sys., Inc. v. Frederick Quinn Corp.14 extended this concept to allow fourth tier subcontractors, including renters of equipment used on the jobsite to assert liens against public funds. This statutory language has also been used as a rationale for limiting a claimant's lien under Section 23, first to the amount due or to become due the contractor from the public body, and second to the amount due from such contractor through the chain of contract to the lien claimant's customer.15
2. State, Unit of Local Government, and Director
The terms "State" and "unit of local government" are so broadly defined that it is often difficult to determine whether an entity is an agency of the State, a unit of local government, or a private entity owning or leasing land.
a. State
The term "State" includes any department, board or commission thereof, or other person financing and constructing any public improvements for the benefit of the State or any department, board, or commission thereof.16 Illinois courts have unanimously concluded that the "State" includes public universities.17 The definition of "person" under the Statute on Statutes18 includes "bodies politic and corporate as well as individuals." Thus, the term "other person" implies that the form of entity can be almost anything.
The words "financing and constructing" are also undefined. Does the entity have to both finance and construct? There is no judicial guidance available on any of these issues.
b. Unit of Local Government
A "unit of local government" not only includes units defined as such in the Illinois Constitution of 1970. It also includes "any entity, other than the State, organized for the purpose of conducting public business pursuant to the Intergovernmental Cooperation Act or the General Not For Profit Corporation Act of 1986, or where a not-for-profit corporation is owned, operated, or controlled by one or more units of local government for the purpose of conducting public business."19
c. Director
The term "director" includes any chairman or president of any State department, board, or commission, or the president or chief executive officer or such other person financing and constructing a public improvement for the benefit of the State.20 This definition becomes important when the public body is an agency of the State.
These definitions mean that just because the party contracting for the improvements appears from its name to be a private entity, and not an agency of the State or a unit of local government, this may not be the case. It is, therefore, critical for an attorney representing a lien claimant to investigate to determine what kind of an entity made the contract for improvements. Because the procedures for asserting liens against public funds are totally different from rules for asserting liens against private real estate, it is essential to check out carefully the real nature of any corporation or other person or entity purporting to be the owner of the real estate or the party contracting with the contractor for the improvement.
3. Public Improvement
While the statute uses the words "public improvement," it does not define that term. In State ex rel. Chemco Indus., Inc. v. Employers Mut. Cas Co.,21 the court said, "A 'public improvement' is generally understood to mean any permanent improvement upon real property owned by [a public body]" (Western Lion Ltd. v. City of Mattoon, 123 Ill. App. 3d 381, 384, 78 Ill. Dec. 772, 462 N.E.2d 891, 894 (1984)." Therefore, a lien may be asserted by a subcontractor on the moneys due or to become due the contractor, only if the work is to permanently improve property owned by a public body. Thus, there are two requirements: (1) the improvement must be permanent; and (2) the improvement must be owned by the public body.
If a public body leases real estate and improves it, is this a "public improvement?" There are two questions...
