Waiving Bond & Lien Rights by Contract

Kegler Brown Construction Newsletter

The recent financial demise of a well-known Central Ohio general contractor has brought into focus a dangerous new contract provision for subcontractors —one that attempts, in advance, to waive all of the subcontractors' lien rights and any ability to collect against a payment bond. Apparently in excess of 40 local subcontractors signed subcontracts with language purporting to waive lien and bond rights buried deep in this general contractor's subcontract and now find themselves embroiled in litigation with the bonding company as to whether such a provision is enforceable.

While there is an unreported Franklin County Court of Appeals case from 1977 holding that such a "no lien" provision is enforceable on a private project, there appears to be no Ohio authority on whether such a provision is enforceable on public projects, or as to payment bonds on either public or private projects.

While such a provision may be of dubious enforceability in these latter circumstances, many subcontractors will be forced to spend money in Court to try to have these provisions found unenforceable and risk a complete loss of any funds owed on these bonded projects.

Therefore, the importance of striking "no lien" or "no bond rights" provisions from subcontracts, rather than assuming them to be void as against public policy, should be apparent to any party to a contract that may potentially need to assert lien or bond rights.