Thursday, August 30, 2012

Massachusetts Does Not Permit Waiver of Statutory Payment Protection

The Massachusetts Supreme Judicial Court has held that a subcontractor’s rights to pursue a payment bond required by law on a public project can’t be nullified by contract. The payment bond law does not expressly prohibit waiver by contract, and the court had to decide whether public policy concerns preclude enforcement of a contractual waiver. The case is Costa v. Brait Builders, decided on August 1, 2012.
The surety had argued successfully at the trial court level that a subcontract clause waiving the sub’s payment bond rights was enforceable, and the trial judge agreed. The surety had contrasted the payment bond law with a provision in the Massachusetts mechanic’s lien law that expressly prohibits any attempt to require advance waiver of lien rights. On appeal, the SJC reviewed the purpose behind the payment bond law, which – according to its title – was “for expediting payment to general contractors and subcontractors and improving the flow of funds in the construction industry.” The court also noted that payment bonds are required by three different construction procurement laws in the state. Thus, “the strong public policy behind the §29 bond requirement renders unenforceable a provision purporting to waive claims against such a bond.”
The court acknowledged that there are competing views on the general topic of private contracts waiving statutorily-granted rights, but concluded: “We think the better view is that [the payment bond law] embraces a substantial public policy, precluding waiver. Accordingly, we conclude that article 7 of the subcontract [waiving such rights] is unenforceable.” The case has been remanded, and the surety will find itself on the hook for a judgment in favor of the sub issued after the original trial.

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