Replacement Contractor's Payment Bond Did Not Apply Retroactively To Cover Work Not Paid for By Original Contractor on Public Works Project

Electrical Electric Control, Inc. v. Los Angles Unified School District, B172858 (Cal.App. 2005).

Give the Los Angles Unified School District an "A" for effort in trying to compel an unpaid subcontractor to tap into a payment bond obtained by the District's replacement contractor, after the District's original contractor failed to obtain one and then defaulted on the contract.

In Electrical Electric Control, Inc. v. Los Angles Unified School District, the District awarded a multi-million dollar public works contract to Wareforce. Although the contract documents required Wareforce to provide a payment bond for the protection of its subcontractors, as required by law, Wareforce did not provide a bond. Wareforce began work on the project, was paid money by the District, but failed to pay its subcontractors. The District subsequently terminated Wareforce from the project, and the public works contract was assigned to a replacement contractor, SBC, with the consent of the public entity. SBC obtained a payment bond from Travelers.

Wareforce had not paid Electrical Electric Control (EEC) approximately $350,000. EEC brought suit against the District, alleging the District was liable for its negligence in allowing Wareforce to commence work without having furnished a payment bond. The District acknowledged that Wareforce did not furnish a bond. However, the District tried to avoid liability by arguing that its duty to make sure Wareforce had obtained a payment bond was discharged when SBC furnished a payment bond several months after Wareforce was thrown off the project. In other words, the District took the position that EEC's remedy was not to seek payment from the District, but to make a claim against the payment bond furnished by SBC.

The trial court concluded that the District had failed to establish the applicability of SBC's payment bond to claims of subcontractors whom Wareforce had failed to pay. The Court of Appeal agreed, noting that SBC's payment bond obtained was intended to cover the work performed by SBC after the assignment of the contract and going forward, not retroactively. A payment bond is but a contract. The Court of Appeal found that there was no evidence that Travelers, the surety that furnished the payment bond to SBC, ever agreed or intended to provide coverage for the subcontract work not paid for by Wareforce.

- James E. Sell