Home | Perspectives |Construction Law Blog | Payment Bond Fraud in Pennsylvania – Why Subcontractors Should Request Copies of Payment Bonds When Signing Subcontractors for Public Projects
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Payment Bond Fraud in Pennsylvania – Why Subcontractors Should Request Copies of Payment Bonds When Signing Subcontractors for Public Projects

The News Story

The Times-Tribune reports that a Lackawanna County insurance agent recently pleaded guilty to fraud for accepting premiums for payment bonds from contractors but never actually procuring those payment bonds from a surety.  This resulted in situations where public works projects were performed without any payment bond providing security for the subcontractors.  Pennsylvania’s Public Works Contractors’ Bond Law of 1967 (i.e. the “Little Miller Act”) requires payment bonds for public projects but imposes no penalty on the public project owner for failing to ensure the requisite bonds are posted.  Thus, Pennsylvania public project owners have no incentive to check to make sure its primes post the required bonds and things like the fraud described in the letter can easily go undetected.

 

The Practical Lesson for Subcontractors

Accordingly, this story is a good reminder to subcontractors in Pennsylvania about the need to obtain a copy of the payment bond for a public project at the time of subcontract formation rather than waiting until when a dispute arises.  Such action will help protect against the type of fraud described in the Times-Tribune report by revealing the lack of payment bond before the subcontractor finds itself in a compromised position.