Discharge of Mechanic’s Lien for Public Improvement bonds are very rare but they share some similarities to regular Discharge of Mechanic’s Lien (DML) bonds. These bonds arise in situations where a subcontractor, hired by a Principal contractor, has not received payment for work performed on a public project. In most cases, public entities require contractors to obtain payment bonds guaranteeing payment to their subcontractors to prevent liens. However, exceptions to payment bonds exist. In the event a subcontractor does not have a payment bond in its favor AND it does not receive payment from the Principal contractor, it may file a Mechanic’s Lien for Public Improvement against the funds due or to become due under the relevant contract.
The Lien Law of the State of New York allows a lienor, typically a subcontractor in the case of public improvement liens, to place a lien on due funds under contract for unpaid work performed. The Principal contractor bears the responsibility for satisfying the lien or providing payment to the subcontractor.
Section 21 of the New York Lien Law allows for a surety bond as an option to discharge a public improvement lien against due funds under contract. Like a DML bond, the bond must equal 110% of the lien amount. The lienor may file their lien with the New York City Department of Finance even though the Department of Finance may not have executed the contract. In essence, the Department of Finance represents New York as the obligee on the bond form because the Comptroller has authority over these types of contracts.
The lienor’s lien will also indicate the contract registration number, which public entity formed the contract with the Principal contractor, and identifies the Principal contractor itself. The Principal on the bond form should also be the Surety’s indemnitor. The bond form must reflect all this pertinent information as well.
A Discharge of Mechanic’s Lien for Public Improvement bond may seem complicated, but in effect the bond simply protects the city of New York and holds it harmless from the lienor’s claims. The bond guarantees payment, by the Principal Contractor, up to the bond amount in the event a ruling determines the lienor has title to valid claims.