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Tuesday, October 21, 2014

Public Construction Bond Act Protects Village from Subcontractor Claim

The Illinois Supreme Court recently ruled in favor of the Village of Antioch in Lake County Grading Company LLC v. Village of Antioch, 2014 Il 115805 (October17, 2014). This case involved an interpretation of the Public Construction Bond Act (30 ILCS 550/1). The Village had entered into a contract with Neumann Homes for the construction of public improvements within subdivisions developed by Neumann. Lake County Grading performed work for Neumann on the public improvements.  Neumann failed to pay Lake County Grading and then Neumann filed for bankruptcy.  Lake County Grading sued the Village seeking payment for work performed.

You may remember that we had previously reported on the appellate court decision in this case that was decided last year.  In its decision, the appellate court had ruled in favor of Lake County Grading, finding that because the Village had failed to obtain a payment bond as required under the Public Construction Bond Act, Lake County Grading could assert a third party beneficiary claim against the Village.

The Village appealed the adverse ruling to the Illinois Supreme Court.  Fortunately, the Supreme Court interpreted the Public Construction Bond Act more favorably to the Village, finding that the Village's requirement that Neumann Homes post a performance bond satisfied the Public Construction Bond Act because the statute deems payment to be part of a bond for public improvements under the Act.  As a result, Lake County Grading’s only recourse is against the bond company, not the Village.  Unfortunately for Lake County Grading, the six (6) month period to file claims under the bond passed so Lake County Grading is left without a remedy.

The Supreme Court's ruling provides protection to municipalities that fail to obtain both a payment and performance bond in connection with public improvement contracts.  However, it is important to note that municipalities that fail to obtain any bond, either performance or payment, could be faced with a third party beneficiary claims for payment. 

Post Authored by Steve Mahrt, Ancel Glink


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