• Lien Waivers and Amendments to the Illinois Public Construction Bond Act -- What Does a Lien Waiver Waive?
  • March 31, 2004 | Author: Timothy A. Hickey
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • Courts generally discharge a construction surety's obligations to the extent that a bond claimant has released any collateral or waived any rights to collect from the contract funds or third parties. By releasing collateral or waiving other rights, a bond claimant impairs the surety's ability to subrogate to the claimants right to recover the loss from contract funds or third parties (a right the surety relies upon when issuing bonds).

    Illinois courts relied upon this discharge theory to bar claims against the surety when a subcontractor or material supplier delivers their Lien Waiver before receiving payment. By waiving its right to collect from contract funds, the subcontractor deprives the surety of the opportunity to recover its loss by stepping into the bond claimant's shoes and asserting a Mechanics Lien against the contract funds.

    Effective August 20, 2003, the Illinois Legislature added the following language to the Illinois Public Construction Bond Act (30 ILCS 550/2) to allow for subcontractors who waive their lien rights to still pursue claims against the surety on public projects,

    The remedy provided in this Section [claims against the bond] is in addition to and independent of any other rights and remedies provided at law or in equity. A waiver of rights under the Mechanics Lien Act shall not constitute a waiver of rights under the Section unless specifically stated in the waiver.

    This statute applies only to state and municipal projects in Illinois.

    To avoid facing claims against the Bond by subcontractors who have already delivered their Lien Waivers, general contractors should add language to their Lien Waiver form expressly waiving the subcontractor or material supplier's right to make any claim against the Bond. However, both general contractors and subcontractors should also be aware that a subcontractor may be able to revoke their Waiver prior to any payments being made in reliance upon that Waiver.