Cities Build Too: Getting Paid On Public Improvements

Iowa law provides a remedy if you are unpaid, but subcontractors and sub-subcontractors must pay close attention to the provisions of Iowa Code § 573.

With the recession behind us, even cities are beginning to spend money. Construction projects for new buildings and infrastructure are being proposed by many municipalities. That’s a good thing for contractors and subcontractors—unless you don’t know how to get paid.

Most Iowa contractors, subcontractors, as well as sub-subcontractors are familiar with Iowa Code § 572, which provides for mechanic’s liens against private commercial and residential construction. Section 572, however, does not apply to public improvements, those payable from taxes or other funds under the control of a “public corporation”, such as the state, all counties, cities, public school corporations, and all officers, boards, or commissions empowered by law to enter into contracts for construction of public improvements.

While a traditional mechanic’s lien cannot be obtained against a public improvement, Iowa Code § 573 provides a remedy for contractors, subcontractors, and those furnishing materials to the contractor or a subcontractor actually performing the work on the improvement. Those who simply furnish materials to a subcontractor who in turn only provides supplies are not protected by Iowa Code § 573.

The provisions of Iowa Code § 573 differ from § 572. Under § 573, general contractors are required to provide a payment bond, with surety, on contracts at or over $25,000, or make a deposit equaling the amount of the required bond, unless the public corporation waives the requirement for a contractor qualifying as a “targeted small business.”

This bond and the code provides a remedy for unpaid subcontractors or sub-subcontractors, while protecting the public corporation. In order for subcontractors or sub-subcontractors to avail themselves of the remedy, they must carefully comply with the provisions of § 573.

For subcontractors or sub-subcontractors only furnishing supplies or materials, the ability to seek payment under § 573 depends on actions before non-payment even becomes an issue. Such subcontractors should make it a practice to send copies of invoices to the general contractor during the progress of the work or within thirty days after the materials are furnished, specifying the materials supplied, the amount supplied, and the value of the material supplied.

When nonpayment becomes an issue, the party seeking payment must file a notarized claim against the contractor at any time by no later than the thirtieth (30th) day after “final acceptance” of the project by the public corporation. The claim must be filed with the “officer, board, or commission authorized by law to let contracts” for the improvement and must contain an itemized, sworn, written statement of the claim for labor, material, service or transportation.

In the case of a sub-subcontractor or subcontractor who only furnished materials, the claim must include a certified statement the general contractor was notified within thirty days of the material being furnished or with itemized invoices during the progress of the work.

After filing the claim, an action to enforce the claim may be brought in the district court in the county in which the improvement is located thirty days after final acceptance of the project by the public corporation, and no more than sixty days following final acceptance. The action must name the board, officer, or commission letting the contract, the general contractor, all claimants who have filed a claim, and the surety on the bond.

Cities are a great source of construction work and every indication is that we will be seeing more of it. But the rules for getting paid are different from those for private construction, and you need to know this before you bid on a city project, not after.