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William G. Fig

CCB Surety Bond Claims – Old Law Gets New Teeth for Material Suppliers & Subcontractors

October 2010

William G. Fig

Published in the Daily Journal of Commerce, October 2010

In Oregon, all contractors must be licensed with the Construction Contractor's Board ("CCB").  As part of the licensing requirement, a contractor must post a surety bond with the CCB.  If a subcontractor or material supplier (collectively "Claimant") is not paid by the contractor, the Claimant may file a claim against the contractor's bond with the CCB. 

While the CCB process is generally user friendly, historically, there were several "downsides" to asserting a CCB claim, most of which involved the limited remedy available to the Claimant.  First, on a residential project, a homeowner's claim against the contractor's bond had first priority and reached the entire the amount of the bond.  Second, on commercial and residential projects, a Claimant's recovery was limited to a maximum of $3,000.  Moreover, the $3,000 cap applied to all subcontractor or material supplier claims made within a 90 day window.  Thus, if multiple claims were made against the contractor's bond, the $3,000 was split pro-rata between all of the Claimants.  As a result, in most instances, it was not economically worthwhile to file a CCB claim.

However, in July 2010, the remedy available to a Claimant via CCB claim changed significantly, at least in terms of a commercial project.  Now, for a claim based on work performed on, or materials supplied to, a "commercial structure", a Claimant may reach the full amount of the contractor's bond.  In other words, the Claimant's recovery is no longer capped at $3,000.  Under the new rules, labor claims have priority over a claim for materials up to the full amount of the bond. 

Also of importance is the fact that the amount of bond the contractor is required to post with the CCB has significantly increased.  A contractor with a commercial endorsement must now post a bond between $20,000 and $75,000.  The amount of the bond depends on the "level" of the contractor's endorsement and whether the contractor is a general or specialty contractor.

The different types of contractors and structures are defined in Oregon Revised Statute ("ORS") 701.005.  Fortunately, the definition of a "commercial structure" is rather broad.  A "commercial structure" may be a "small" commercial structure or a "large" commercial structure.  A "small" commercial structure is defined as:

(a)       A nonresidential structure that has a ground area of 10,000 square feet or less, including exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the structure;

(b)       A nonresidential leasehold, rental unit or other unit that is part of a larger structure, if the unit has a ground area of 12,000 square feet or less, excluding exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the unit; or

(c)        A nonresidential structure of any size for which the contract price of all construction contractor work to be performed on the structure as part of a construction project does not total more than $250,000.

 A "large" commercial structure is defined as "a structure that is not a residential structure or small commercial structure."  The statutory definition of a residential structure is not axiomatic and warrants a careful reading.  Among other things, it includes "a structure that contains one or more dwelling units and is four stories or less above grade."

The rules have not changed for a CCB claim involving a residential structure.  Claims against a contractor with only a "residential" endorsement must be filed with the CCB, regardless of the type of structure involved, and recovery against the bond is still limited to $3,000. 

The new rules regarding filing a claim involving a commercial structure are somewhat convoluted.  Claims against a contractor with a "commercial" and "residential" endorsement working on a "small commercial structure" may, at the election of the Claimant, be asserted directly with the CCB.  The CCB claim may only be asserted against the entity or person that holds the CCB license.  

The Claimant may also file a CCB claim, but elect to prosecute the substance of the claim via a lawsuit against the contractor.  A Claimant would choose this option if it wanted to concurrently assert a claim against an entity or individual other than the licensee, such as a guarantor.  Upon completion of the lawsuit, the Claimant may satisfy the judgment obtained against the contractor from the contractor's CCB surety bond.  For work performed on a "large commercial structure" or for claims against a contractor with only a "commercial" endorsement (regardless of the type of structure), the Claimant is required to prosecute the substance of its CCB claim via a lawsuit against the contractor. 

Unfortunately, the viability of a CCB claim involving a residential structure has not changed.  Because of the limited remedy, in many instances, it is not worth filing a such claim.  However, this is no longer the case for commercial projects.  The significant increase in the amount of the surety bonds and the ability of the claimant to reach the full amount of the bond gives a CCB claim on a commercial project some serious teeth.   An unpaid subcontractor or material supplier involved with a commercial project should give serious consideration to filing a CCB claim. 

William G. Fig  is a partner in Sussman Shank LLP's Business Litigation and Construction Practice Groups. You can reach Bill at (503) 227-1111 or billf@sussmanshank.com. 

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