Surety Liability

Most contractors believe that a surety’s liability is absolute if the subcontractor’s statement is not paid. This is not true. Once again, the Ohio Revised Code sets forth the requirements before a subcontractor can demand payment from the surety.

If the subcontractor is owed more than thirty thousand dollars, a Notice of Furnishing has to to be served upon the surety as set forth in the mechanics’ lien law. This means that the surety must be served with a Notice of Furnishing within 28 days of the first work being perfomred or material furnished.

Upon completion of the job, or the last material being furnished, the subcontractor must serve the surety with a statement of the amount due within 90 days of the completion of the contract and acceptance by the owner of the property. After 60 days, the subcontractor can commence a law suit against the surety, but this lawsuit must be filed within one year of acceptance by the owner.

Lets use an example to deonstrate your obligations under the law. You are contracted by the general contractor to supply and install a floor in the new high gymnasium. You commence your work on January 1. You complete the work on March 31 and the board of education provides a notice of acceptance on April 30. The original contractor goes out of business prior to the entire gymnasium is completed and you have not been paid.

What is required of you prior to the surety's liability in this example? First you had to provide a Notice Furnishing to the surety within 30 days of the commencement of your work, or in this example, by January 30. You then must notify the surety within 90 day of the acceptance of the work by the property owner, or in this example, by July 30. Failure to provide either of these notices, on a timely basis, may preclude your sharing any surety's distribution.

I would also point out that many bonds require that all funds (including any retainage) be paid to the original contractor before the surety is obligated to pay the subcontractors. Therefore, if the property owner is retaining funds due to the original contractor’s breach, the surety is not yet liable.