David M. Henry
If the federal, state or local government is the owner of a construction job located in Wisconsin, subcontractors and material suppliers have no right to file a construction lien against the job site. However, under both Wisconsin and federal law, they have important alternative remedies available. To take advantage of these remedies, subcontractors and material suppliers must precisely follow the special laws governing those remedies, rather than the laws applicable to filing, perfecting and enforcing a construction lien against a privately owned job site.
Wisconsin State or Local Government-Owned Public Projects
While a subcontractor or material supplier cannot file a mechanic’s lien against a project owned by the State of Wisconsin or a local Wisconsin government entity, they do have a statutory right to two other remedies: (1) a payment bond claim; and (2) a lien on unpaid public funds. To pursue these two remedies, they must not follow the procedures and requirements for filing a lien on the job site. Rather, they must comply with the separate statutory requirements for perfecting and enforcing a claim against the payment bond and/or perfecting and enforcing a lien on unpaid public funds.
Payment Bond Claims on State or Local Government Public Jobs in Wisconsin
The Wisconsin statutes impose different payment-bond requirements for publicly owned construction projects. On all state-owned projects where the contract exceeds $369,000, and all local-government projects where the contract exceeds $148,000, the general contractor must furnish a payment bond. On smaller public projects (state projects between $148,000 and $368,999 and local government jobs between $74,000 and $147,999), the public entity must require the general contractor to furnish a payment bond or other assurances of payment to subcontractors and suppliers on the project. If a public job is bonded, the amount of the bond must meet or exceed the amount of the project’s contract price.
For public jobs that are bonded (with the exception of state-owned highway construction projects), any party who furnishes labor, services or materials for the project is eligible to assert a claim against the payment bond if the party has a contract with either the general contractor or a first-tier subcontractor. On state-owned highway construction projects, only those furnishing labor, materials or services directly to the general contractor are eligible to assert a claim against the payment bond. Those parties furnishing labor, materials or services to a first-tier or lower subcontractor are not eligible to assert a payment bond issued for a state highway project.
As a general rule, in order to perfect and enforce a claim against a payment bond covering a public project, the subcontractor or supplier must serve a written notice on the general contractor by registered or certified mail that the subcontractor or supplier has furnished or will furnish labor, services or materials for the public job, and this notice must be served on the general contractor within 60 days of the date the subcontractor or supplier first furnished labor or materials for the project. However, the 60-day notice of furnishing is not required if: (a) the claimant’s contract is for less than $5,000.00; (b) the claim is asserted by an employee of the prime contractor, subcontractor or supplier or; (c) the claimant is included in a list of subcontractors or suppliers which the general contractor must provide to the public entity that issued the construction contract. A bond claimant also must file a lawsuit to enforce its bond claim within one year of the date it last furnished labor or materials for the project, and the suit must be brought against the general contractor and the surety which issued the payment bond in the state courts of the county where the project is located.
Lien on Unpaid Public Funds
In addition to a payment bond claim, certain subcontractors and suppliers may have a lien on any funds owed to the general contractor on a public job in Wisconsin. However, this lien on public funds is only available to subcontractors and suppliers who furnished labor or materials used or consumed on the project, and then only if their contract is directly with the general contractor. Subcontractors and suppliers who furnish labor or materials to a first-tier or lower subcontractor are not eligible to assert a lien on unpaid public funds.
In order to perfect a lien on unpaid public funds, an eligible subcontractor or supplier must serve, by registered or certified mail, a written notice of such lien on funds on the state, county, town or municipality that issued the contract for the public project, and a copy of the written notice must also be served by registered or certified mail on the general contractor. While there is no clear deadline by which the notice of this claim must be served, it is of no value if the public entity no longer owes the general contractor any funds on the public job. Thus, an eligible claimant should serve this notice as early as possible if they are owed funds on a public job owned by the state or a local Wisconsin government entity.
Once the public entity receives the notice, it is required to withhold a sufficient amount from funds due to the contractor to pay the amount of the noticed claim, and the general contractor must dispute the claim by serving written notice of the dispute on the public entity within 30 days of the date it was served with the written claim notice. If the general contractor fails to timely dispute the claim, then the public entity must pay the claim and charge it to the amount it owes to the general contractor on the project. If the general contractor timely disputes the claim, then the public entity will not pay the claim, the claimant must file suit in the county where the job is located within 3 months from the time the claimant gave written notice of its claim, and also must serve written notice of the lawsuit on the public entity with whom the lien-on-public-funds claim was originally filed. The court will then determine if the claim is valid. If this suit is not timely filed, the lien is no longer valid or enforceable.
On some public jobs, the total amount owed by the public entity to the general contractor may be less than the total amount of all of the liens asserted against the unpaid funds owed to the general contractor. If the general contractor has not timely disputed the amounts of the filed lien claims, the public entity shall determine on a pro rata basis the amount to be paid to each claimant, and shall notify the general contractor and all of the lien claimants of the pro rata amount to be paid to each lien claimant. If a lawsuit is not filed by the general contractor or a lien claimant disputing the public entity’s determination within 20 days of the mailing of this notice, the public entity shall pay the pro rata amounts to the claimants. If such a lawsuit is timely commenced, all claimants must be made parties in the suit and the action must be started within 3 months after the public entity has accepted the work by the general contractor. Within 10 days after the filing of a certified copy of ultimate judgment in the lawsuit, the public entity must pay into the court the amounts due to the general contractor on the job, and those funds are to be distributed as ordered by the court in its judgment.
Lien on Public Funds Due on City of Milwaukee Projects
To perfect and enforce a lien on public funds on a job owned by the City of Milwaukee, a different set of procedures and requirements must be followed, as set forth in the Milwaukee City Charter. To be eligible to assert such a claim, the subcontractor or supplier must have furnished labor or materials for the City of Milwaukee project under a direct contract with the general contractor.
In order to perfect this lien, a claimant must, by certified or registered mail, file in the office of the Milwaukee City Clerk and the office of the Milwaukee Commissioner of Public Works a written notice of its claim, which must include:
In addition, within 20 days of filing the claim notice, the claimant must file suit against the general contractor for recovery of the amount of its claim and the enforcement of its lien. The action must be brought in the Circuit Court of Milwaukee County, and the City of Milwaukee, along with the general contractor, must be named as defendants in the suit. If the lawsuit is timely commenced and is served on the City of Milwaukee, the City shall retain the funds owed to the general contractor up to the claim amount, until the court determines how the funds are to be distributed.
Federally Owned Public Jobs Located in Wisconsin
If the public job is owned by the federal government, Wisconsin law does not apply, and claims by subcontractors or suppliers are governed by a federal statute called the Miller Act. Unpaid subcontractors and suppliers cannot file a lien against a federally owned job site. Their sole remedy, if eligible, is to perfect and enforce a claim against a payment bond furnished by the general contractor. Unlike property owned by Wisconsin state or local governments, there is no lien against public funds available on federally owned projects located in Wisconsin.
Under the Miller Act, the payment bond claim acts as a substitute for a mechanics lien or a lien on unpaid funds, and it requires the general contractor to furnish a payment bond in at least the amount of its federal contract if the contract price exceeds $150,000. Only those furnishing labor or materials to the general contractor or to a first-tier subcontractor have the right to pursue a Miller Act bond claim. Parties who furnish labor or materials to a second-tier or lower subcontractor, or who furnish materials to another material supplier cannot assert a valid claim against the payment bond under the Miller Act.
If a Miller Act bond claimant’s contract is with a first-tier subcontractor, then the bond claimant must perfect its bond claim by providing written notice of its bond claim, by certified mail, to the general contractor within 90 days of the last date the claimant furnished labor or materials for the federal project. If the claimant’s contract is directly with the general contractor (that is, if it is a first-tier subcontractor), then the claimant does not need to satisfy the 90-day notice requirement. If required, the 90-day written notice must state that the bond claimant is seeking payment from the general contractor and its bond company and include the amount of the bond claim and the name of the first-tier subcontractor with whom the claimant contracted for the federal job. While it is not explicitly required by the Miller Act, it is advisable to serve the 90-day notice not only on the general contractor, but also on the surety who issued the payment bond for the project and the federal agency that issued the contract for the project.
Courts have ruled that the 90-day written notice must be actually received by the general contractor within 90 days of the last furnishing date, and not just mailed within the 90-day period. Further, the 90-day notice period does not re-start if the claimant returns to the job site to perform punch list or warranty work, or merely corrects defects in the labor or materials it previously furnished for the project.
Under the Miller Act, a bond claimant also must file suit to enforce its claim within one year of the date it last performed labor or furnished materials for the federal job. The one-year suit filing deadline begins to run on the last date that the claimant furnished labor or materials for the job under its contract, and is also not extended for punch list or warranty work or for work correcting defects in previously furnished labor or materials. In addition, the suit must not be filed any earlier than 90 days after the claimant last furnished labor or materials for the job. If it is filed prematurely, the suit risks dismissal. The Miller Act requires that the suit to enforce a bond claim must be timely filed in the federal district court located in the district where the federal project is located, and cannot be brought in state court under any circumstances or it is subject to dismissal.
At or before the time a subcontractor or material supplier contracts to furnish labor and/or materials for a Wisconsin construction project that it suspects is publicly owned, it is critical that the subcontractor or material supplier determines if the job is publicly owned and, if so, if it is owned by the federal government, the State of Wisconsin, or a Wisconsin local government entity. The subcontractor or material supplier should then identify the public agency or entity that issued the contract for the project and attempt to verify if the job is covered by a payment bond and, if so, obtain a copy of the payment bond. Then, the subcontractor or material supplier should take care to timely serve any notices required to perfect their payment bond claim or claim on unpaid public funds, and file suit within the applicable deadline if they remain unpaid.
The available remedies to pursue payment by a subcontractor or material supplier on a publicly owned project are complicated and unforgiving. If you have questions or need advice concerning a claim for labor or materials furnished for a public job located in Wisconsin, contact KMK Attorneys David M. Henry (email@example.com) or Lance E. Duroni (firstname.lastname@example.org). Both can be reached at (414) 962-5110.