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Sloan Const. Co. v. Southco Grassing, Inc. Wanda Surrett, S.C. Depart. of Transp., and Greer State Bank, Opinion No. 26462 (March 24, 2008)
In a recent decision, the South Carolina Supreme Court held that subcontractors have a private rights of action against government entities under the Subcontractors' and Suppliers' Payment Protection Act (SPPA). The Court also held that subcontractors are third-party beneficiaries to construction contracts where the contact incorporates the SPPA.
The South Carolina Department of Transportation ("SCDOT") hired Southco Grassing, Inc. ("Southco") as the general contractor on a state highway maintenance project. Southco contracted with Sloan Construction Co. ("Sloan") to perform paving work. Southco acquired the required payment bond; however, this payment bond was cancelled as a result of the insurer's insolvency. Southco never replaced the bond before informing the SCDOT that it had paid all of its subcontractors. Southco had not made full payment to Sloan when the SCDOT disbursed the final retainage to Southco. Sloan then filed suit against the SCDOT pursuant to the South Carolina Tort Claims Act alleging that it failed to ensure Southco was properly bonded. Sloan also brought a breach of contract claim against the SCDOT as third-party beneficiary to the contract between the SCDOT and Southco.
The South Carolina Supreme Court reversed the trial court's decision finding that a subcontractor has no private right of action against a government entity for failing to enforce a statue and finding that a subcontractor lacks privity to be a third-party beneficiary to a contract between general contractor and government entity.
The Court found an implied right of action between a subcontractor and a contracting government body under the SPPA. The Court found an implied right of action because it was apparent that the legislature intended this statue to be for the benefit of subcontractors. The Court also found that where the SPPA and its bonding requirements are incorporated into construction contacts, subcontractors are third-party beneficiaries to those contacts.
This recent decision allows subcontractors to file suit against the government entity for failure to enforce the SPPA and also recognizes that a subcontractor is a third-party beneficiary to construction contracts which incorporate the SPPA.
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