Western Waterproofing Co. v. Springfield Housing Authority
669 F. Supp. 901, 1987 U.S. Dist. LEXIS 8574 (1987)
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Rule of Law:
When a public entity fails to secure a payment bond from a general contractor as required by statute, unpaid subcontractors may sue the public entity for breach of contract as third-party beneficiaries of the construction contract.
Facts:
- In January 1985, the Springfield Housing Authority (SHA), a public entity, contracted with Bildoc, Inc. to be the general contractor for a construction project.
- The contract included a provision titled 'PERFORMANCE AND PAYMENT BOND', but its text only explicitly mentioned a performance bond.
- Bildoc, Inc. subsequently entered into subcontracts with Western Waterproofing Company, Inc. (Western) and Mid-Continental Restoration Company, Inc. (Mid-Continental) to provide labor and materials for the project.
- The SHA failed to procure from Bildoc, Inc. either a performance bond or a payment bond as required by the Illinois Bond Act.
- Western and Mid-Continental fully performed their work under their subcontracts.
- SHA made final payment for the project to Bildoc, Inc. on December 13, 1985.
- Bildoc, Inc. never paid Western the $129,000 it was owed or Mid-Continental the $22,456 it was owed.
Procedural Posture:
- Western Waterproofing Company and Mid-Continental Restoration Company (Plaintiffs) filed suit against Bildoc, Inc. and the Springfield Housing Authority (SHA) in the U.S. District Court.
- The plaintiffs obtained a default judgment against Bildoc, Inc., but were unable to collect any money on that judgment.
- The plaintiffs resumed their case against the SHA, focusing on the counts alleging a third-party beneficiary contract claim.
- The plaintiffs and the SHA filed cross-motions for summary judgment on the remaining counts.
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Issue:
Does an unpaid subcontractor have a third-party beneficiary contract claim against a public entity when the entity fails to obtain a payment bond from the general contractor, as required by both statute and the construction contract?
Opinions:
Majority - Mills, District Judge
Yes, an unpaid subcontractor has a third-party beneficiary contract claim against a public entity that fails to obtain a required payment bond. The court reasoned that the Illinois Bond Act, which mandates payment bonds on public works projects to protect subcontractors, is implicitly read into the public works contract between the SHA and Bildoc. This statute, combined with the contract's ambiguous 'PERFORMANCE AND PAYMENT BOND' provision, created a contractual duty for the SHA to require the bond. The court determined that subcontractors are the direct and intended beneficiaries of this duty, as the primary purpose of a payment bond is to ensure they are paid. Because the benefit is direct, not incidental, the subcontractors have standing to sue as third-party beneficiaries for the breach of the promise to secure the bond. The court also rejected the SHA's immunity defense, holding that sovereign immunity for tort claims does not apply to contract actions.
Analysis:
This decision establishes a crucial remedy for subcontractors on public works projects by allowing a direct contract action against a public entity that neglects its statutory duty to require a payment bond. It effectively circumvents the sovereign immunity shield that often bars negligence claims against government bodies in similar situations. By incorporating the statutory bond requirement into the public contract itself, the court creates a contractual right for subcontractors as third-party beneficiaries. This precedent significantly strengthens subcontractor protections and incentivizes public entities to diligently enforce bond requirements, thereby reducing the risk of non-payment by insolvent general contractors.
