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Friday, November 12, 2004

Cases—Third Party Beneficiaries—Subcontractors are third party beneficiaries of public contract despite clause to the contrary

Illinois Subcontractors under a public works contract in Illinois are third-party beneficiaries of the contract and can maintain claims against the issuing village when they are not paid—even though the contract itself specifically provides that the village will not be liable for payment to them.

The Illinois Court of Appeals noted that the contract provided that the village did not "have an obligation to pay or to see to the payment of money to a subcontractor except as may otherwise be required by law" (emphasis added).  It was that last phrase that did the village in.  The village, said the court, had a preexisting legal obligation under the state’s Bond Act to ensure that the contractor posted a proper bond, and that clause was specifically for the benefit of subcontractors.  The village breached its obligation by failing to make sure the contractor posted the bond.

The subs went on to lose, however, because although the claim was for breach of the TPB contract, and not under the Bond Act, the court held that they were subject to the 180-day limitations period under the Bond Act, not the longer contract statute.

Ardon Elec. Co. v. Winterset Construction, Inc., 2004 Ill. App. LEXIS 1313 (1st Dist. Nov. 2, 2004).

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