GUEST COLUMN
Are public payment bond rights assignable
under North Carolina law? Maybe.

By Brett Becker
Special to North Carolina Construction News
Contractors, like other busi-
nesses, often find it advantageous to
assign their accounts in exchange
for some other form of consideration
from the assignee. What is different
about a contractor’s accounts, as
compared to most other businesses,
is that the amounts owed might be
secured by payment bonds.

It should not be disputed that a
contractor can assign its accounts to
a third party so long as the proper
procedures are followed. However, if
the accounts relate to a project
where the contractor would have a
valid claim on a public payment
bond, can this right be assigned
along with the accounts?
Practically, the ability of a third
party purchaser to make a bond
claim would make the assignment of
accounts more lucrative for the as-
signee and would provide some bar-
gaining power for the contractor
who wants to assign the accounts.

However, once the accounts are as-
signed and the third party assignee
goes to make a claim on the bond
and enforce that claim in court, will a
court dismiss the action right off the
bat for lack of standing of this new
claimant? In North Carolina, maybe.

Under the plain terms of North
Carolina’s Little Miller Act, claimants
under payment bonds are discussed
in terms of those “who have per-
formed labor or furnished materials
in the prosecution of work required
by any contract” without any lan-
guage expanding this to “or their as-
signs.” A plain reading of North
Carolina’s Little Miller Act would sup-
port the argument that only those
[1] parties who actually worked on the
project would have standing to bring
an action on the payment bond.

But not so fast – it does not ap-
pear North Carolina courts have ad-
dressed the issue of assignability of
public payment bond claims and the
resulting standing of the assignee
under the Little Miller Act. If faced
with the question, North Carolina
courts should look to federal law in-
terpreting the federal Miller Act “on
which our corresponding state act is
modeled . . . .”
HSI NC, LLC v. Diversified Fire Pro-
tection of Wilmington, Inc., 169 N.C.

App. 767, 771-72, 611 S.E.2d 224,
227 (2005); McClure Estimating Co.

v. H.G. Reynolds Co., Inc., 136 N.C.

App. 176, 181, 523 S.E.2d 144, 147
(1999). And in doing so, the North Car-
olina courts should see that “as-
signees of the claims of persons
furnishing labor or material c(o)me
within the protection of the (federal
Miller Act).”
U.S. for Benefit and on Behalf of
Sherman v. Carter, 53 U.S. 210, 219,
77 S.Ct. 793, 798 (1957) (rejecting
surety’s argument that claimant had
not furnished labor or materials to the
project); see U.S. ex rel. Construc-
tors, Inc. v. Gulf Ins. Co., 313 F. Supp.

2d 593, 597 (E.D. Va. 2004) (approv-
ing of the decisions in Carter and rec-
ognizing the ability of a “valid
assignee [to] properly claim payment
under a Miller Act bond”). [1]
Furthermore, allowing an as-
signee to make a claim on a pay-
ment bond advances the very
purposes of North Carolina’s Little
Miller Act. A payment bond is in-
tended for the “protection of the per-
sons furnishing materials or
performing labor . . . .” N.C.G.S. §
44A-26. Payment bonds “were de-
signed for the protection of laborers
and materialmen and are to be con-
strued liberally for their benefit.”
Symons Corp. v. Ins. Co. or N. Am.,
94 N.C. App. 541, 544, 380 S.E.2d
550, 552 (1989). Under this context,
it is beneficial to allow assignability.

For example, without the ability to
assign payment bond claims, a con-
tractor in need of cash flow in order
to stay on and finish a project is less
likely to find funding through factor-
ing agreements. By ensuring credit
will be readily extendable to contrac-
tors, contractors may be less likely
to walk off of public projects before
substantial completion. This, in turn,
enhances the public’s interest to pre-
vent avoidable delays in a public con-
struction project and the contractors’
private interests as well. This is just
one way allowing assignability of
payment bond claims may be in both
the public’s interest and in contrac-
tors’ interests.

Therefore, while the question has
not been conclusively decided in
North Carolina, there are arguments
supporting the ability of contractors
to assign their payment bond claims
along with their accounts. Under-
standing this can be an effective
business tool for contractors.

Nexsen Pruet's Construction Group is
one of the leading construction practices
in the Carolinas. Our attorneys have expe-
rience in all areas of the construction in-
dustry and have worked throughout
North and South Carolina for many years.

Brett Becker is an associate in Nexsen
Pruet’s Greensboro office and may be
reached at 336.387.5150 or
bbecker@nexsenpruet.com. In Gulf Ins. Co., the court ultimately determined an actual assignment had not occurred and there was no viable claim because the
subcontractors, who alleged assignee claimed it was subrogated to, were not owed any payments. 313 F. Supp. 2d at 598.

14 — Summer 2018 — The North Carolina Construction News