Colorado § 38-26-107 - Supplier may file statement - notice - withholding funds.

§ 38-26-107. Supplier may file statement - notice - withholding funds.

(1) Any person, as defined in section 2-4-401 (8), that has furnished labor, materials, equipment, services, sustenance, or other supplies used or consumed by a contractor or their subcontractor in or about the performance of the work contracted to be done or that supplies laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work whose claim therefor has not been paid by the contractor or the subcontractor may, at any time up to and including the time of final settlement for the work contracted to be done, file with the board, officer, person, or other contracting body by whom the contract was awarded a verified statement of the amount due and unpaid on account of the claim, whether the amount is disputed or undisputed. Nothing in this article 26 prohibits the inclusion of costs otherwise allowed under a contract in a verified statement of claim, including costs incurred as a result of delay, lost productivity, or other disruption to the work. If the amount of the contract awarded to the contractor exceeds one hundred fifty thousand dollars, the board, officer, person, or other contracting body by whom the contract was awarded shall, no later than ten days before the final settlement is made, publish a notice of the final settlement at least twice in a newspaper of general circulation in any county where the work was contracted for or performed or in an electronic medium approved by the executive director of the department of personnel. It is unlawful for any person to divide a public works contract into two or more separate contracts for the sole purpose of evading or attempting to evade the requirements of this subsection (1).

(2) Upon the filing of any such claim, such board, officer, person, or other body awarding the contract shall withhold from all payments to said contractor sufficient funds to ensure the payment of said claims until the same have been paid or such claims as filed have been withdrawn, such payment or withdrawal to be evidenced by filing with the person or contracting body by whom the contract was awarded a receipt in full or an order for withdrawal in writing and signed by the person filing such claim or his duly authorized agents or assigns. Such funds shall not be withheld longer than ninety days following the date fixed for final settlement as published unless an action is commenced within that time to enforce such unpaid claim and a notice of lis pendens is filed with the person or contracting body by whom the contract was awarded.

(3) At the expiration of the ninety-day period, the person or other body awarding the contract shall pay to the contractor such moneys and funds as are not the subject of suit and lis pendens notices and shall retain thereafter, subject to the final outcome thereof, only sufficient funds to ensure the payment of judgments that may result from the suit. Failure on the part of a claimant to comply with the provisions of sections 38-26-101, 38-26-106, and this section shall relieve the board, officer, body, or person by whom such contract was awarded from any liability for making payment to the contractor. At any time within ninety days following the date fixed for final settlement as published, any person, copartnership, association of persons, company, or corporation, or its assigns, whose claims have not been paid by any such contractor or subcontractor may commence an action to recover the same, individually or collectively, against the surety or other qualified financial institution on the bond or other acceptable surety specified and required in section 38-26-106.

Source: L. 23: p. 481, § 3. L. 29: p. 525, § 1. CSA: C. 39, § 7. CRS 53: § 86-7-7. C.R.S. 1963: § 86-7-7. L. 85: (1) amended, p. 1202, § 3, effective May 10. L. 2000: (1) amended, p. 213, § 19, effective August 2. L. 2003: (1) amended, p. 1690, § 1, effective September 1. L. 2007: (1) amended, p. 420, § 1, effective August 3. L. 2009: (1) amended, (SB 09-290), ch. 374, p. 2042, § 8, effective August 5; (3) amended, (SB 09-248), ch. 270, p. 1226, § 2, effective August 5. L. 2014: (1) amended, (HB 14-1387), ch. 378, p. 1853, § 66, effective June 6. L. 2026: (1) amended, (SB 26-074), ch. 39, p. 186, § 3, effective August 12.

Cross references: (1) For publication of legal notices, see part 1 of article 70 of title 24.

(2) For the legislative declaration in HB 14-1387, see section 1 of chapter 378, Session Laws of Colorado 2014.

ANNOTATION

Law reviews. For article, "Contractual Rights of Persons Not Parties to the Contract in Colorado", see 3 Rocky Mt. L. Rev. 175 (1931). For article, "Labor and Material Claims on State Public Works Projects", see 24 Colo. Law. 2165 (1995).

Constitutional. Limiting the lien rights created by this section to one in privity of contract with the owner or general contractor acting on behalf of the owner does not violate the equal protection clause of the Colorado Constitution. Such a limitation protects the public entity, its contractor, and the surety on the public works project from unforeseeable claims. Western Metal v. Acoustical and Const., 851 P.2d 875 (Colo. 1993).

Policy. The clear policy underlying Colorado law is that laborers and suppliers of materials in construction projects are to be paid. First Com. Corp. v. First Nat'l Bancorporation, Inc., 572 F. Supp. 1430 (D. Colo. 1983).

This article is designed to protect all persons who supply labor or material for public works projects and is the public works counterpart of the mechanic's lien statute. Heinrichsdorff v. Raat, 655 P.2d 860 (Colo. App. 1982).

Section stands in lieu of the mechanic's lien statute, and is designed to protect those who supply labor and materials for public works. South-Way Constr. Co. v. Adams City Serv., 169 Colo. 513, 458 P.2d 250 (1969); Weld Colo. Bank v. E & E Constr., Inc., 653 P.2d 758 (Colo. App. 1982). See also Flaugh v. Empire Clay Prods., Inc., 157 Colo. 409, 402 P.2d 932 (1965).

Section applies only to what the public entity must do and to its liability if it fails to comply; it does not provide defense to contractor who is otherwise liable. White Const. Co., Inc. v. Sauter Const. Co., 731 P.2d 784 (Colo. App. 1986).

Effect of section. For purposes of giving effect to this section, the actions of the subcontractors in purchasing materials and labor are imputed to the principal contractor; however, no such relationship can be extended beyond the statutory remedy. Flaugh v. Empire Clay Prods., Inc., 157 Colo. 409, 402 P.2d 932 (1965).

This section provides suppliers to public works projects with a remedy independent of the remedies afforded under §§ 38-26-105 and 38-26-106. Colo. Crane & Hauling v. McKee, Inc., 761 P.2d 792 (Colo. App. 1988).

Section provides alternate methods of relief, and specifically requires the governmental agency to withhold funds to insure payment of claims by materialmen provided proper and timely notice is given. South-Way Constr. Co. v. Adams City Serv., 169 Colo. 513, 458 P.2d 250 (1969).

Section permits actions against § 38-26-106 sureties. Subsection (3) permits qualified claimants, within 90 days of the date for final settlement of claims, regardless of the date of completion, to file actions against sureties who have posted performance bonds pursuant to section 38-26-106. Rocky Mt. Ass'n of Credit Mgt. v. Marshall, 44 Colo. App. 467, 615 P.2d 68 (1980).

Without regard to six-month limitation. This section contains no requirement that the date for final settlement must be within a six-month period subsequent to the completion of the work as is the case under § 38-26-105. The final settlement date, whenever it might occur, is the critical date for purposes of subsection (3). Rocky Mt. Ass'n of Credit Mgt. v. Marshall, 44 Colo. App. 467, 615 P.2d 68 (1980).

To the extent that §§ 38-26-105 and 38-26-107 (3) are irreconcilable, § 38-26-107 (3), adopted subsequent to § 38-26-105 and containing specific time requirements, must control. Rocky Mt. Ass'n of Credit Mgt. v. Marshall, 44 Colo. App. 467, 615 P.2d 68 (1980).

Section provides additional remedy. While the six-month limitations provision of § 38-26-105 is applicable to actions on a performance bond, subsection (3) of this section contains no bonding provisions and establishes a new remedy for suppliers. Rocky Mt. Ass'n of Credit Mgt. v. Marshall, 44 Colo. App. 467, 615 P.2d 68 (1980).

Surety company not required party. The surety company which wrote the bond to the contracting agency was not required to be made a party since it had no contingent liability on the materialman's withholding claim because the contracting body had enough withheld funds to pay the claim sued upon. South-Way Constr. Co. v. Adams City Serv., 169 Colo. 513, 458 P.2d 250 (1969).

Claimant may recover only for such work and materials as were specifically necessary for the doing of what the contractor had to do in the construction of the public work. South-Way Constr. Co. v. Adams City Serv., 169 Colo. 513, 458 P.2d 250 (1969).

Amounts for lost profits, contractual mark-ups, nonrental equipment costs, and extended overhead are not within the ambit of "labor, materials, sustenance, or other supplies used or consumed by a subcontractor in or about the performance of the work contracted to be done". Nor do they qualify as "supplying laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work". Wadsworth Constr. v. Reg'l Rail Partners, 2024 COA 78, 558 P.3d 641.

Provision is permissive. The provision of subsection (3) that persons having claims against contractors may commence an action to recover the same against the surety on the contractor's bond within the specified time is, in this respect, permissive, and not mandatory. Continental Cas. Co. v. Rio Grande Fuel Co., 108 Colo. 472, 119 P.2d 618 (1941).

Filing of claims by laborers and materialmen not mandatory. The filing of claims by laborers and materialmen for services and material furnished is not mandatory, the only penalty for failure to file such claims being to release the body awarding the contract from all liability; also, such failure does not operate to discharge the surety on the bond of the contractor, given to secure performance of the contract, from liability thereunder. Continental Cas. Co. v. Rio Grande Fuel Co., 108 Colo. 472, 119 P.2d 618 (1941).

Failure to meet statutory requirements does not deprive contractor of common-law claims. Failure of a subcontractor or materialman to meet the statutory requirements of this section and §§ 38-26-105 and 38-26-106, e.g., time limitations within which a claim must be filed, does not deprive it of its common-law claims against the principal contractor and the principal contractor's surety. Montezuma Plumbing & Heating, Inc. v. Hous. Auth., 651 P.2d 426 (Colo. App. 1982).

Protected claimants are those who have a direct relationship with the contractor or one whose acts in purchasing labor and materials are imputed to him. Although subcontractors are not in privity of contract with the owner of the property they are in privity with the general contractor. Western Metal v. Acoustical and Const., 851 P.2d 875 (Colo. 1993).

Applied in Kaiser Steel Corp. v. Fulton, 261 F. Supp. 997 (D. Colo. 1966); General Elec. Co. v. Webco Constr. Co., 164 Colo. 232, 433 P.2d 760 (1967); Lovell Clay Prods. Co. v. Statewide Supply Co., 41 Colo. App. 166, 580 P.2d 1278 (1978); Columbine Valley Constr. Co. v. Bd. of Dirs., 626 P.2d 686 (Colo. 1981).