N.V Heathorn, Inc. v. County of San Mateo (2005) 126 Cal.App.4th 1526 involved a public works project. Nielsen Dillingham Builders, Inc. contracted with San Mateo County to build the County Health Center. Heathorn contracted with Nielsen Dillingham Builders, Inc. to provide labor and materials for the project. Heathorn was not paid as expected (due to Nielsen Dillingham Builders, Inc. filing for bankruptcy) and sought to recover from the county.
Heathorn argued the county was liable because of its failure to require its general contractor on a public project to obtain a payment bond as required by Civil Code section 3247.
The court, in its analysis, examined the difference between the law regulating private projects and the law regulating government projects. In general, in private projects, the right to payment for labor and materials is secured by what is usually known as a "mechanic's lien." Such a lien is granted by the California Constitution in article XIV, section 3.
The resulting lien, further defined statutorily in the mechanic's lien law (see Civ. Code, § 3110 et seq.), arises when a contractor or subcontractor provides labor or materials for construction on the owner's property. (See generally 4 Witkin, Summary of Cal. Law (10th ed. 2005) Security Transactions in Real Property, §§ 26-29, pp. 819-823.)
Upon nonpayment for the labor or materials, the contractor or subcontractor can take steps to execute on the lien and recover payment through foreclosure of the lien. (Id. at § 29, pp. 822-823.)
In the case of a public works project for which a government has hired a contractor, the project is exempt from the mechanic's lien law: Suppliers of labor and materials are not entitled to a lien on public property. (See Heathorn, supra, 126 Cal.App.4th at p. 1535.)
As a substitute for the mechanic's lien, in the case of construction on government projects, Civil Code sections 3247 and 3248 provide that a government entity must require (in most cases) public works contractors to provide a surety bond for payment of those who have furnished labor and materials for the project-i.e., those who would be entitled to a mechanic's lien on a private construction project. (See Civ. Code, § 3248, subd. (c).)
The Court of Appeal held that a county could be held liable for failing to require the general contractor on a public works project to provide a payment bond when a bankrupt general contractor failed to pay one of its subcontractors. (Heathorn, supra, at pp. 1529-1530, 1537.)
The liability imposed upon the governmental entity was analogous to the liability imposed on a property owner in a private construction project; it simply took the form of a government tort claim for failure to discharge the Public Works Act bonding duty, rather than the form of a mechanic's lien proceeding. (See Heathorn, supra, at p. 1536.)