Can Subs Recover Prompt Pay Interest on Liens and Payment Bond Claims?
Kegler Brown Construction Newsletter April 1, 2005
Subcontractors and suppliers are enthusiastic about recovering 18 percent interest and attorneys' fees from customers who fail to pay them within ten days after receipt of money under Ohio's Prompt Payment Act. The question arises as to whether the interest and attorney's fees are recoverable against third parties, like owners on mechanic's liens, and bonding companies on payment bond claims.
At least one trial court has declined to award interest and fees on a public lien against a public owner and on a payment bond claim against a bonding company. Intercargo Ins. Co. v. Mun. Pipe Contrs., Inc., 127 Ohio Misc. 2d 48, 2003-Ohio-7363.
In this case, arising from an ODOT project, the unpaid subcontractor filed a lien against public funds as well as a payment bond claim against the general contractor's bonding company.
The Court ruled because the Prompt Payment Act did not specifically reference bonding companies and because bonding companies have 60 days to pay bond claims (rather than the ten day period for a contractor to pay under the Prompt Payment Act), the above-market 18 percent interest "penalty" should not apply to the bonding company. The Court further found such interest was not recoverable from ODOT on the sub's lien against public funds because statutory interest was not "labor and materials" and further, because there were no prompt pay requirements imposed on ODOT with respect to the general contractor.
This case, if adopted by other courts, may make it harder to recover prompt pay interest and attorney's fees from bonding companies and other third parties. However, pre-judgment interest at a lower rate may still be recovered by any payment bond claimant when the bonding company fails to pay the claim within 60 days of submission.