Chapter 10 - § 10.2 PAYMENT BONDS UNDER C.R.S. § 38-26-105

• Jurisdiction: Colorado

§ 10.2 PAYMENT BONDS UNDER C.R.S. § 38-26-105

§ 10.2.1—Overview

C.R.S. § 38-26-105 requires, in most instances, that general contractors who are awarded a contract on a public works project obtain a payment bond to guarantee that all subcontractors, laborers, and materialmen will be promptly paid. If not paid, such persons may bring an action directly against the general contractor and the bonding company.²¹

Payment bonds are third-party beneficiary contracts. In most cases, the general contractor is the principal on the bond and the guarantor of the obligation, and the surety guarantees payment under the bond. If the subcontractor or materialman is not paid, the statute allows him or her to sue the surety or general contractor directly, even if there is no privity of contract.²² Subcontractors, materialmen, mechanics, suppliers of rental equipment, and others may have a right of action for amounts lawfully due them from the contractor or subcontractor directly against the principal and surety of such bond.²³

§ 10.2.2—Bonding Requirements

C.R.S. § 38-26-105(1) requires that

any person, company, firm, or corporation entering into a contract for more than fifty thousand dollars with any county, municipality, or school district for the construction of any public building or the prosecution or completion of any public works or for repairs upon any public building or public works is required before commencing work to execute, in addition to all bonds that may be required of it, a penal bond with good and sufficient surety to be approved by the board or boards of county commissioners of the county or counties, the governing body or bodies of the municipality or municipalities, or the district school board or boards, conditioned that such contractor shall at all times promptly make payments of all amounts lawfully due to all persons supplying or furnishing such person or such person's subcontractors with labor, laborers, materials, rental machinery, tools, or equipment used or performed in the prosecution of the work provided for in such contract and that such contractor will indemnify and save harmless the county, municipality, or school district to the extent of any payments in connection with the carrying out of any such contract which the county or counties, municipality or municipalities, and school district or school districts may be required to make under the law. Subcontractors, materialmen, mechanics, suppliers of rental equipment, and others may have a right of action for amounts lawfully due them from the contractor or subcontractor directly against the principal and surety of such bond. Such action for laborers, materials, rental machinery, tools, or equipment furnished or labor rendered must be brought within six months after the completion of the work.

C.R.S. § 38-26-105(3) requires that

[t]his section applies to all contracts for more than fifty thousand dollars awarded to a private entity for the construction of any public building or the prosecution or completion of any public works or for repairs upon any public building or public works that is situated or located on publicly owned property using any public or private money or public or private financing.

Thus, any general contractor awarded a public works project for more than $50,000 with a county, municipality, or school district or involving a Public/Private Partnership must provide a payment bond.²⁴ Further, the courts have extended the bond requirements to hospital districts.²⁵

The state is mandated to provide payment and performance bonds on projects in excess of $150,000 pursuant to C.R.S. § 24-105-202(1).²⁶ That statute...