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Subcontractor's Payment Bond Claim Ruled Too Late
Carolinas AGC Weekly Bulletin
Martin L. White

The North Carolina Court of Appeals recently ruled that a subcontractor's lawsuit against the bonding company on a public project was not timely filed despite it being filed less than one year from the date of final payment to the General Contractor by the Owner. In the case of Cencomp, Inc. d/b/a Philips Iron Works and Ted Cihos d/b/a Philips Iron Works v. Webcon, Inc. and International Fidelity Insurance Company, __ N.C. App. ___, 579 S.E.2d 482 (May 6, 2003), the Court of Appeals upheld the trial court's grant of summary judgment in favor of the Surety on the basis that the Subcontractor's lawsuit was barred by the applicable statute of repose.

N.C. Gen. Stat. § 44A-28(b) states that, "No action on a payment bond shall be commenced after the expiration of the longer period of one year from the date on which the last of the labor was performed or material was furnished by the claimant, or one year from the day on which final settlement was made with the contractor" (emphasis added). In the Cencomp case, the Court held that "final settlement" and "final payment" are not synonymous for purposes of calculating the one-year statute of repose.

The facts of the case revealed that on September 15, 1999, the General Contractor sent its final billing to the Owner-City. Shortly thereafter, the Project Engineer informed the Owner-City that substantial completion was achieved. On September 21, 1999, the Owner-City tendered final payment to the General Contractor with the exception of $50,291.74 in retainage. The Owner-City explained to the General Contractor that the retainage would be held until all suppliers and subcontractors were paid in full.

The Subcontractor filed its lawsuit against the Surety on December 11, 2000, less than one year from the date of the final payment of the retainage held by the Owner-City. The Surety successfully argued, however, that "final settlement" for purposes of the statute of repose began on September 21, 1999, the date the City administratively fixed the amount it was due to pay. As a result, the Subcontractor's bond suit was lost.

In view of this case, potential bond claimants cannot rely on the date of final payment for purposes of determining its deadlines to file a bond suit. While the Court held that substantial completion must be obtained prior to "final settlement," the Court also determined there is no requirement that a contract be 100% completed before a public owner can determine the final settlement (and trigger the one-year statute of repose). Accordingly, prudent bond claimants should file bond suits within one year from the date of substantial completion.