Iowa DOT Ordered to Pay Subcontractors

February 3, 2014. On Friday, the Iowa Supreme Court issued a decision which requires the Iowa Department of Transportation (DOT) to pay three subcontractors after they completed work on state projects but were never paid by the general contractor.

The case involves improvements made to rest stops on Interstate 80. The DOT hired the general contractor, Universal Concrete, Ltd., which in turn hired Star Equipment, Manatt’s Inc. and Short’s Concrete Cutting Co. to provide equipment, materials and labor. After the general contractor failed to pay the subcontractors, they sued the general contractor and the Iowa DOT.

Notably, the project involved a contract entered into by the DOT with a general contractor, Universal Concrete, who was classified by the state as a “Targeted Small Business” (TSB), meaning it is minority-owned and exempted from the requirement of posting a surety bond to secure payments on the project. Thus, there was no surety bond from which the subcontractors could otherwise have sought payment (Iowa Code Chapter 573, which is Iowa’s counterpart to the Federal Miller Act, provides protections for contractors to secure payment on public projects; generally, a surety bond secures payment since mechanics’ liens cannot be filed on public property in the State of Iowa).

The trial court judge ruled against the subcontractors, finding that state law did not require the DOT to pay on the general contractor’s obligations. The Supreme Court reversed, finding that subcontractors of state-hired TSB general contractors can seek payment from the state if the general contractor fails to pay. In reaching this conclusion, the Supreme Court reasoned that Iowa Code Section 573.2 acts as a waiver of sovereign immunity when the requirement of a bond is waived (such as when a TSB is hired as a general contractor), thereby allowing subcontractors to recover the balance owing directly from the DOT.

A copy of the decision, which is favorable to subcontractors providing labor or services for TBS contractors on public projects, can be found here. Goosmann Law Firm, PLC can be contacted at info@goosmannlaw.com or by calling 712.226.4000.