In a recent decision, Costa v Brait Builders Corporation, et al., the Massachusetts Supreme Judicial Court (SJC) reversed the decision of a trial court which had enforced a provision in a subcontract waiving the subcontractor’s right to collect against the general contractor’s payment bond under G.L. c. 149, §29. The SJC held that the waiver provision in the subcontract violated public policy and could not be enforced.
The subcontract provision at issue provided in relevant part:
In the event that the subcontractor does not provide performance and payment bonds on a form acceptable to the Contractor, then the subcontractor waives its right to claim against the Contractor’s performance and payment bonds as provided to the Awarding Authority.
The subcontractor did not provide performance and payment bonds to the general contractor, and when the subcontractor later filed a lawsuit to collect its subcontract balance, the surety defended, in part, by arguing that the subcontractor had relinquished its right to claim against the general contractor’s payment bond. The lawsuit went to trial, and at the close of the subcontractor’s case, a judge in the trial court granted a motion for directed verdict and entered judgment with respect to the subcontractor’s claims seeking relief under the payment bond. At the trial, the jury awarded significant damages to the subcontractor on its claims against the contractor.
On appeal, the subcontractor argued that the subcontract provision violated Massachusetts public policy and should not be enforced. In its decision, the SJC studied the statutory schemes for both public construction bonds and the mechanic’s lien statute applicable to private construction, and concluded that the strong public policy behind the G.L. c. 149, §29 payment bond requirement renders unenforceable a provision purporting to waive claims against such a bond. The SJC noted that G.L. c. 149, §29 should be construed liberally to achieve its remedial purpose of assuring payment to subcontractors, and that this provision is an outgrowth of the mechanic’s lien statute, under which waivers are explicitly barred as “against public policy.” The SJC stated that “it would be anomalous to ascribe to the Legislature an intent to forbid waivers under [the mechanic’s lien statute], but to permit them under G.L.c. 149, §29.” Accordingly, it concluded that the subcontract waiver was unenforceable, and it reversed the trial court order granting the motion for a directed verdict.
The importance of this case to subcontractors and other parties seeking to collect against a general contractor’s payment bond is significant. Any attempts to contractually limit payment bond rights on public projects will likely be held unenforceable, even if the limitation is triggered by the subcontractor’s failure to provide its own bond.