Kansas Subcontractors and Suppliers Secure Construction Project Payment Protections

Glass Magazine
April 14, 2017

Construction subcontractors and suppliers in Kansas have won important payment protections on public work financed through public-private partnerships.

On April 7, Kansas Gov. Sam Brownback (R) signed SB55, which requires a contractor with a prime contract exceeding $100,000 on a public-private partnership, also known as P3 project, to provide performance and payment bonds. A performance bond states that the contractor will furnish and install whatever it has contracted to build in accordance with the contract plan 
and specifications. A payment bond states that those that supply labor and materials on a project will be paid subject to any restrictions and limitations imposed by statute, the contract or subcontract, and/or the bond itself.

Initiated by the American Subcontractors Association-Greater Kansas City chapter, the new Kansas law requires that the payment bond must be for “the full contract amount solely for the protection of claimants supplying labor or materials to the contractor or subcontractors in the performance of the work.” Such bonds must be underwritten by “good and sufficient sureties as determined by the public owner.”

Construction of projects for public use through a public-private partnership is increasing at all levels of government, but especially at state and local levels. Governments are turning to P3s to be able to tap private-sector equity to finance capital projects rather than trying to budget public funds raised through taxes. Typically, the public entity will authorize the private entity to design, build and frequently operate the resulting public work. Private capital is attracted to such projects through financing arrangements that will provide profits to the private partner’s investors.

Depending on how a construction project funded by both public and private sources is structured, the project may be exempt from both payment bond requirements and mechanic’s lien laws, leaving subcontractors and suppliers without adequate payment assurances.

“Construction subcontractors and suppliers have a big stake in such legislation—making sure projects financed through P3s include payment rights,” said E. Colette Nelson, chief advocacy officer, American Subcontractors Association, Alexandria, Virginia. “Unless specified in an authorizing statute or in the contract documents, there are unlikely to be subcontractor payment assurances—neither payment bonds nor mechanic’s lien rights—on such projects. Construction subcontractors and suppliers considering work on projects financed through P3 arrangements need to confirm what, if any, payment assurances are available to them before they bid,” Nelson added.