It may appear cut and dry whether a contract is for a private work of improvement or public work of improvement. California Paving & Grading, Co. found out that things are not always as they seem.
In California Paving & Grading Co. v. Lincoln General Ins. Co. (2012) Cal. App. LEXIS 595, the City of Los Angeles (“the City”) entered into a Subdivision Improvement Agreement with 26 Moorpark LLC (“Moorpark”) under which the City required Moorpark to construct and install certain public improvements serving its proposed subdivision as a condition for approving the final map. In accordance with the agreement, Moorpark obtained a “subdivision labor and material payment bond” from Lincoln. Moorpark then entered into a prime contract with a general contractor for construction of the public improvements. The general contractor in turn entered into a subcontract with California Paving & Grading Co., Inc. (“California Paving”) to perform street paving and asphalt work in connection with the public improvements.
California Paving served a preliminary 20-day notice on the developer (Private Works) but did not serve the City with the same preliminary notice (Public Works). Both Moorpark and the general contractor subsequently filed for bankruptcy and California Paving was not paid. California Paving then filed suit against Lincoln to recover on the labor and material payment bond Moorpark filed with the City.
Lincoln demurred to California Paving’s complaint and asserted that California Paving failed to make a timely claim on the bond in accordance with California Civil Code § 3252 (failure to serve 20-day public work preliminary bond notice pursuant to section 3098). The preliminary 20-day notice required by section 3098 (public work) requires written notice “to be given to the contractor, and the public agency concerned.” Lincoln also claimed that California Paving’s suit was untimely in that it was filed outside the six month period that stop notices could be filed. California Civil Code § 3184. The Trial Court sustained the demurrer without leave to amend.
On appeal, California Paving argued that section 3098 was not applicable because its work was subdivision improvement work and not “public work” within the meaning of Civil Code § 3100. California Paving relied on the case of Progress Glass Co. v. American Ins. Co. (1980) 100 Cal. App. 3d 720 for the proposition that an agreement by a private developer to install improvements on publicly owned land, at its own expense, is not a public works project.
The Court of Appeal disagreed, and held that the work was in fact a public work as it was originally contracted for by the City of Los Angeles. Civil Code § 3100 defines the term “public work” as “any work of improvement contracted for by a public entity.” The Court reasoned that the subcontract between California Paving and the general contractor furthered the underlying agreement between the City and Moorpark and thus was considered a public work. The Court pointed to the fact that the original contract, on its face, was entered into by and between the City (a public entity) and Moorpark, the developer. It also cited language in the subcontract between the general contractor and California Paving that required California Paving “to furnish labor, service, equipment and material required pursuant to the prime contract for the construction of the public improvements.”
The Court of Appeal was also able to distinguish the Progress Glass case because the public entity in that case had not entered into a contract with the developer, unlike the City and Moorpark.
This case illustrates the hazards a contractor may encounter in making assumptions about the nature of a project. In situations where a contractor’s work involves public improvements on a project that is otherwise a private work, contractors would be well advised to seek clarification of whether the public work is required by a public entity. Because the time periods and procedures for securing payment are different between private and public works, a correct understanding about the nature of the project is essential.
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