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46 A.B.A. J. 649 (1960)
Surety Bonds on Public and Private Construction Projects

handle is hein.journals/abaj46 and id is 651 raw text is: Surety Bonds on Public and Private Construction Projects In this article, Mr. Cushman discusses the legal aspects of surety bonds, placing special emphasis upon bonds required by the Federal and State Governments to protect suppliers of labor and material. Mr. Cushman's son, Robert F., collaborated with him in preparing this article. by Edward H. Cushman * of the Pennsylvania Bar (Philadelphia) T'HE PREVENTION OF unjust en- richment is the principle upon which a mechanic's lien rests. The first mechan- ics' lien statute in the United States was enacted in 1791 by the General Assembly of Maryland, to encourage master builders to undertake the building and furnishing houses within the proposed capital city of Washing- ton by securing to them a just and effectual remedy for their advances and earnings. Mechanics' liens have been created by statute in every state of the Union because of the legislative realiza- tion of the equity in favor of the me- chanic resulting from an enhancement in value due to the expenditure of work or the employment of materials upon property justifying payment therefor. Since the security has been enhanced in value, creditors are not prejudiced by the existence of the lien. Bonds on Public Works A building erected for the United States is not subject to a mechanic's lien, but the public body has a moral obligation to see to it that the persons who furnished labor and material re- quired in the construction of a public project are paid in full. In recognition of this obligation, Congress, by the Act of August 13, 1894, commonly called the Heard Act, required any person entering into a formal contract with the United States for the construction or repair of any public building or public work to execute a single penal , bond with good and sufficient sureties, with the additional obligation that such contractor or contractors shall prompt- ly make payments to all persons sup- plying him or them labor and material in the prosecution of the work provided for in such contract. The United States, in requiring the contractor to agree to pay his laborers and materialmen and to furnish the bond to assure such payments, ac- quired a right against the contractor if these suppliers were not paid. The Heard Act failed to protect the United States fully. A few subcon- tractors recovered on suits instituted thereunder before the completion of the building. This tended to diminish the penal sum of the bond and thus to prejudice the United States when the contractor failed to perform the gov- ernment contract. Whereupon, Con- gress, by an amendment in 1905, as- sured the United States priority of its demands by requiring other creditors to refrain from suit on the bond for six months after completion of the contract and final settlement thereun- der, and providing that, if the United States had a claim on the bond, it should have priority in distribution ever all other claimants. Procedural problems resulted in court decisions prejudicial to suppliers of labor and material. Ohio enacted legislation under which the performance bond was required to contain an additional obligation for the payment of labor and material claims and to be in an amount equal to fifty per cent of the contract price. The Supreme Court of Ohio held that when the penal sum named in the bond was insufficient to cover the loss sus- tained by the municipality by reason of the contractor's failure to complete the contract, the municipality might recover the full penalty named in the bond; persons who furnished labor and material required to construct the pub- lic improvement had no right of re- covery, since the statute did not ex- pressly give materialmen priority over the municipality. An 1892 ordinance of the City of Lancaster, Pennsylvania, initiated the dual bond system, which is now the basis of the federal statute commonly known as the Miller Act, and also of the law in a number of states.2 The dual bond system adequately protects the interest of the public body by a performance bond and at the same time affords unpaid laborers and ma- terialmen a reasonably swift and cer- tain remedy under a separate or addi- tional bond taken exclusively for their protection. The simplification attained by tile separation of the dual obligation of performance and payment of labor and material claims achieved by the Miller 1. 40 U.S.C.A. 270 (a) to (d), August 24, 1935 49 Stat. 794. 2. Alabama Code, 2931 (9) (Supp. 1936). California West Annos. Government Code, ch. 3, §4200 to 4210 stat. 1943, ch. 134, as last amend- ed the stal. 1959, ch. 1594, §2. Connecticut Rev. Stat. tit. 58, c. 362, Secs. 7214 (1949). Georgia Code flooK 8, 1958-59 Supp. §23-1705 pages 114, 115. Maryland Laws of 1959, Ch. 10, page 15. Pensyleania Statutes of 1931 and 1933 were the forerunners of the Miller Act. There are too many separate statutes for tabulation here. Each deals with one political subdivision of the state or other public body. For procedure, see 53 P.S. Sections 525 to 529, etc. June, 1960 • Vol. 46 649

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