- Associated Press - Friday, January 31, 2014

DES MOINES, Iowa (AP) - The Iowa Department of Transportation is responsible for paying three subcontractors after they completed work on state projects in 2011 but were never paid by the general contractor hired by the state, the Iowa Supreme Court ruled on Friday.

The case centers on improvements made to Interstate 80 rest stops in Adair County. The DOT in 2010 hired Universal Concrete Ltd. as the general contractor, which in turn hired Star Equipment, Manatt’s Inc. and Short’s Concrete Cutting Co. to provide equipment, concrete, and labor.

The three subcontractors, owed in excess of $32,000 combined, sued Universal Concrete and won judgments that remain unpaid.

Universal Concrete’s listed telephone number was no longer in service and the company was listed as inactive on the Iowa Secretary of State’s website.

The subcontractors then sued the DOT but lost in Adair County district court when a judge ruled in January 2012 that state law does not require the DOT to pay obligations of a general contractor. The subcontractors appealed to the Iowa Supreme Court, saying a state law amended in 1988 allows subcontractors shortchanged by a state-hired general contractor to turn to the state for payment.

The case specifically involves the contract entered into by the DOT with Universal Concrete, which was classified by the state as a Targeted Small Business. That means it is minority-owned and exempted from the requirement of posting a surety bond.

Typically, the DOT requires general contractors to post bonds that can be used to collect in cases in which subcontractors or others involved in projects are unpaid. But the state, in an effort to help minority businesses get established, allows contracts to be signed without requiring the bonds as a way to encourage government agencies to contract with them.

In this case, Universal was not required to post a bond and when the project was completed in 2011 and the subcontractors were not paid, there was no bond from which to collect money, court documents said.

The Supreme Court said the appeal presented the first opportunity for the court to decide whether a 1988 law requires the DOT to pay subcontractors shortchanged by a general contractor when there is no surety bond posted.

The court interpreted the law to mean the DOT should pay the subcontractors and any reasonable attorney fees. Justices ordered the case back to district court where the judge must hear the subcontractors’ claims for unpaid work, interest, costs and reasonable attorney fees.

“The Legislature made the policy choice that the benefit of encouraging TSBs outweighs the increased financial risk of awarding a project to an unbondable business and that the state should bear the risk of default,” the court wrote.

The Iowa Attorney General’s Office, which represented the DOT, declined to comment.

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