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March 1, 2015

The Illinois Supreme Court in an opinion filed October 17, 2014, in the case of Lake Country Grading Company, LLC v. The Village of Antioch clarified the law requiring completion and payment bonds for public works projects. A grading company sued the Village alleging that the Village failed to obtain a payment bond as required by the Construction Bond Act; 30 ILCS 550/1 (The Bond Act). Both the trial and appellate courts ruled in favor of the grading company.

The Bond Act requires public bodies, when contracting for public works costing more than $50,000, to obtain from the contractor a payment bond guaranteeing that all contractors who perform construction services, including labor and materials, be paid for their services and materials.

The Bond Act also requires a public body to obtain a performance bond (a completion bond) guaranteeing that all work contracted for by the contractor be completed by the bond company if the contractor fails to do so. In the case mentioned herein the bond contained language guaranteeing completion of the project. However, it did not include language guaranteeing payment.

The Bond Act also requires a claimant to serve a notice of claim against the bond upon the public body, within 180 days after claimant’s last day worked on the project.

In the subject case the Plaintiff did not serve the 180 day notice on the Village instead, it filed suit against the Village for failure to obtain a payment bond.

The Supreme Court ruled that although no payment guarantee language was included in the bond in question, the bond is presumed to include a payment guarantee. This is because of the language in Section 1 of the Bond Act that each bond is deemed to contain provisions ensuring payment to all persons who perform labor or provide materials and guaranteeing completion “whether such provisions are inserted in such bond or not.”

The Supreme Court ruled that the above language from the Bond Act unambiguously provided that both payment and completion provisions are deemed to be included in the bond as a matter of law. Therefore only the one bond was necessary as it was deemed to include both provisions. Separate bond or expense language for each provision were not necessary. Thus the Village acted in compliance with the Bond Act.

The Supreme Court overruled both the trial and appellate court and held in favor of the Village, determining that it had in fact obtained a bond which included both payment and completion provisions in accordance with the Bond Act.