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SECOND DIVISION
DECEMBER 12, 2000

No. 1-99-4076

Plaintiff, subcontractor Shaw Industries, Inc. (Shaw), filed an amended complaint against defendant, Community CollegeDistrict No. 515, also known as Prairie State College (Prairie State College), alleging breach of contract arising fromPrairie State College's failure to require the procurement of a payment bond from its contractor, now bankrupt, Prairie StateAssociates, Inc. (PSA), pursuant to the Illinois Public Construction Bond Act (30 ILCS 550/1 et seq. (West 1998)) (BondAct). Prairie State College filed a motion to dismiss the amended complaint pursuant to Section 2-615 of the Code of CivilProcedure (735 ILCS 5/2-615 (West 1998)), which the trial court granted without prejudice. Thereafter, Shaw filed amotion to reconsider. The trial court denied Shaw's motion and dismissed Shaw's cause with prejudice without leave toamend. Shaw appealed.

On appeal, Shaw, the subcontractor, principally contends that the trial court committed reversible error in dismissing itsamended complaint because (1) plaintiff was a third-party beneficiary authorized to bring the cause of action pursuant toSection 1 of the Bond Act (30 ILCS 550/1 (West 1998)), and (2) plaintiff's breach of contract suit against the defendant, apublic entity, is not subject to the six-month limitations period in Section 2 of the Bond Act (30 ILCS 550/2 (West 1998)). Shaw also alleges that it is entitled to recover from Prairie State College pursuant to the Local Government PromptPayment Act (Prompt Payment Act) (50 ILCS 505/9 (West 1998)).

BACKGROUND

In its amended complaint, Shaw states that it is in the business of manufacturing and selling materials, including carpeting. PSA, now bankrupt, was in the business of selling and installing carpeting and other materials manufactured by othercompanies. In December 1996, PSA ordered carpeting and related materials from Shaw so that PSA could fulfill itsobligation to Prairie State College pursuant to purchase order number 31974, dated August 21, 1996.

The purchase order was for 465 yards of carpet, including installation. The cost listed on the purchase order was $14,800.It was addressed to Don Sullivan of PSA, Inc., from Ray Marthaler of Prairie State College. Shaw also alleges that PrairieState College had prior dealings with PSA and was familiar with the fact that PSA purchased, as opposed to manufactured,carpeting.

Additional allegations by Shaw include the following: that it fully performed all of its obligations and that it last furnishedmaterial to PSA on or about February 21, 1997; that Prairie State College claims to have paid PSA all public fundsappropriated for the project; that PSA owes Shaw $25,877.28 plus interest; and that, pursuant to the Bond Act, Prairie StateCollege, a political subdivision, was obligated to require a payment bond from PSA to ensure payment to all of PSA'ssubcontractors that furnished labor and/or materials in connection with purchase order number 31974.

On August 1, 1997, Shaw served Prairie State College and PSA with a "Notice Of Claim For Lien Against Public FundsAnd Claim On Contractor's Bond." In a letter dated August 4, 1997, Prairie State College advised Shaw that no paymentbond had been obtained.

Shaw also contends that had Prairie State College obtained a payment bond from PSA, as required by Section 1 of the BondAct to guarantee payment for the materials used in connection with a public improvement, then Shaw would have been ableto recover under said bond for the materials it provided to the now-bankrupt PSA. Shaw further contends that it should beable to recover under the Prompt Payment Act.

Prairie State College moved to dismiss Shaw's amended complaint alleging that plaintiff's complaint asserted a cause ofaction for breach of contract yet also implied violations under the Bond Act. Specifically, defendant's motion asserted that:(1) plaintiff cannot assert a breach of contract claim as [it is] not in privity of contract for the contract at issue; (2) plaintiffhas exceeded the statute of limitations to file for payment under the Bond Act; (3) the Prompt Payment Act does not applyto claims brought by subcontractors against public bodies; and (4) the doctrine of laches should apply here as Prairie StateCollege has already completed its budget and levy and paid the contractor for the work at issue and, therefore, should notbe required to pay a claim that did not come in a timely manner. On appeal, Shaw contests allegations (1), (2) and (3).

We affirm.

ANALYSIS

I

When a complaint is dismissed pursuant to Section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1998)),the standard of review is de novo. Vernon v. Schuster, 179 Ill. 2d 338, 344, 688 N.E.2d 1172, 1175 (1997). The questionpresented by a Section 2-615 motion to dismiss is whether the allegations of the complaint, when viewed in a light mostfavorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Vernon, 179 Ill. 2d at344, 688 N.E.2d at 1175. A cause of action should not be dismissed on the pleadings unless it clearly appears that no set offacts can be proved under the pleadings that entitle the plaintiff to recover. Vernon, 179 Ill. 2d at 344, 688 N.E.2d at 1175.

A

Shaw contends that the trial court committed reversible error in dismissing its amended complaint under section 2-615 ofthe Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 1998)), because Shaw was a third-party beneficiaryauthorized to bring the cause of action pursuant to Section 1 of the Bond Act (30 ILCS 550/1 (West 1998)), and alsobecause its breach of contract suit against the defendant, a public entity, is not subject to the six-month limitations period insection 2 of the Bond Act (30 ILCS 550/2 (West 1998)).

Section 1 of the Bond Act (30 ILCS 550/1 (West 1998)) provides:

"Except as otherwise provided by this Act, all officials, boards, commissions or agents of this State,or of any political subdivision thereof in making contracts for public work of any kind to be performed for the State, or apolitical subdivision thereof shall require every contractor for such work to furnish, supply and deliver a bond to the State,or to the political subdivision thereof entering into such contract, as the case may be, with good and sufficient sureties. Theamount of such bond shall be fixed by such officials, boards, commissions, commissioners or agents, and such bond,among other conditions, shall be conditioned for the completion of the contract, for the payment of material used in suchwork and for all labor performed in such work, whether by subcontractor or otherwise." (Emphasis added.) 30 ILCS 550/1(West 1998).

Here, section 1 of the Bond Act provides that the public entity "shall require every contractor for such work to furnish,supply and deliver a bond to the State *** with good and sufficient sureties." (Emphasis added.) 30 ILCS 550/1 (West1998). This language is clear and unambiguous.

The use of the word "shall" generally connotes a mandatory reading. North Shore Community Bank & Trust Co. v. Kollar,304 Ill. App. 3d 838, 846-47, 710 N.E.2d 106, 111-12 (1999). Moreover, a court must construe a statute as it is written andmay not, under the guise of construction, supply omissions, remedy defects, annex new provisions, substitute differentprovisions, add exceptions, limitations, or conditions, or otherwise change the law so as to depart from the plain meaningof language employed in the statute. Superior Structures Co. v. City of Sesser, 292 Ill. App. 3d 848, 852, 686 N.E.2d 710,713 (1997).

Further, as a remedial statute, the Bond Act is liberally construed to effectuate the General Assembly's intent to encourageand protect artisans, materialmen, and tradesmen. East Peoria Community High School District No. 309 v. Grand StageLighting Co., 235 Ill. App. 3d 756, 759-60, 601 N.E.2d 972, 974 (1992). Because the Bond Act was established to achievethe same remedial goal as the mechanic's lien in a public works situation, it follows that the Bond Act should be read intopublic works contracts between the public entity and the general contractor requiring the procurement of a payment bond. Western Waterproofing Co. v. Springfield Housing Authority, 669 F. Supp. 901, 904 (C.D. Ill. 1987); East Peoria, 235 Ill.App. 3d at 760, 601 N.E.2d at 974.

In Western Waterproofing, subcontractors brought an action against the housing authority asserting their rights as third-party beneficiaries of a provision of the general contract that required the general contractor to provide a performance bond. Western Waterproofing, 669 F. Supp. 901. The ultimate issue in Western Waterproofing was "[w]hether a third-partybeneficiary contract action could be asserted by an unpaid subcontractor against a public entity where such entity has failedto procure from the general contractor a payment bond as required by the Illinois Bond Act." Western Waterproofing, 669F. Supp. at 902. The court answered that question affirmatively

In that case, plaintiffs were subcontractors for a federally funded construction project for defendant, Springfield HousingAuthority (SHA). SHA entered into an agreement with Bildoc, the general contractor, for waterproofing and weatherizingof five high-rise apartment buildings. The general contractor then entered into contracts with various subcontractors, whichincluded plaintiff Western Waterproofing Company and plaintiff Mid-Continental Restoration Company, Inc. Bothplaintiffs contributed labor and materials toward the completion of the project. Both plaintiffs were to receive payment 63days from completion of the project. The work was completed and final payment, minus retainage, was made to Bildoc. Western Waterproofing was to receive $129,000 under its agreement with Bildoc and Mid-Continental was to be paid$22,456 pursuant to its agreement with Bildoc, but neither received payment for the work performed.

Plaintiffs filed a complaint and secured a default judgment against Bildoc but were unable to collect. Plaintiffs resumedproceedings against SHA. Counts of plaintiffs' complaint which alleged that the plaintiffs were third party beneficiaries ofSHA's contract with Bildoc were the subject matter of cross- motions for summary judgment in the case. WesternWaterproofing, 669 F. Supp. at 902.

The plaintiffs based their claim that they were third-party beneficiaries of the contract between SHA and Bildoc on aprovision in the general contract:

"PERFORMANCE AND PAYMENT BOND

A performance bond in the amount of total amount of contract for cost of installation of windows will be furnished to theauthority as a separate cost item and will be added to the contract price. After the first shipment of windows and paymentthereof by SHA, the Contractor shall provide SHA with a Waiver of Lien against all materials on site." WesternWaterproofing, 669 F. Supp. at 902-03.

SHA failed to procure a payment bond or a performance bond from Bildoc. The Western Waterproofing court found that"[t]he Act contains mandatory language directing the requirement of a payment bond to protect materialmen andsubcontractors." (Emphasis added.) Western Waterproofing, 669 F. Supp. at 903. The court further stated that, "[u]nderIllinois law, 'statutory provisions applicable to a contract are deemed to form a part of that contract and must be construedin connection therewith.'" Western Waterproofing, 669 F. Supp. at 903, quoting DC Electronics, Inc. v. Employers ModernLife Co., 90 Ill. App. 3d 342, 348, 413 N.E.2d 23 (1980).

In determining that plaintiffs were third-party beneficiaries under the contract to procure a bond where no bond had beenprocured, the court in Western Waterproofing stated that the general rule is well settled: "If the contract is entered into forthe direct benefit of a third person, not a party to the contract, such third person may sue for breach thereof. The test iswhether the benefit to the third person is direct or incidental. If direct, he may sue on the contract. If incidental, there is noright of recovery." Western Waterproofing, 669 F. Supp. at 904, citing Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252,257, 178 N.E.2d 498 (1931).

The Illinois Appellate Court, in East Peoria, followed the ruling in Western Waterproofing. In East Peoria, subcontractors,who were working on school remodeling projects, sued the school district to collect on amounts unpaid by the generalcontractor. The circuit court entered judgment for the subcontractors and the school district appealed. East Peoria, 235 Ill.App. 3d 756, 601 N.E.2d 972.

In East Peoria, the plaintiff school district contracted with the general contractor, Tousley-Iber, to oversee a life safetysurvey and related improvements of some high school buildings. The general contractor hired defendant Union Roofing forroof work, defendant PIPCO Company, Ltd., for plumbing work, defendant Grand Stage Lighting for stage renovationwork, and defendant Shick Supply & Equipment Company for locker replacement. All of the subcontractors performed thework under their respective contracts. Plaintiff made progress payments to the contractor but the contractor did not makepayments to defendant Grand Stage Lighting or defendant Shick. The contractor paid Union Roofing and PIPCO for partof the work they performed. East Peoria, 235 Ill. App. 3d at 758, 601 N.E.2d at 973.

Litigation ensued between the parties. At issue in East Peoria were the claims by the subcontractors that they were third-party beneficiaries of the agreement between plaintiff and the contractor and also that the Bond Act mandated that plaintiffrequire the contractor to obtain a payment bond. The trial court granted each defendant's motion for summary judgmentand held, inter alia, that the contract was subject to the Bond Act and that the subcontractors were third-party beneficiariesof the contract between plaintiff and the contractor. East Peoria, 235 Ill. App. 3d at 758, 601 N.E.2d at 973. As a result ofthe court's subsequent order entered pursuant to the parties' stipulations, defendants Union Roofing, Grand Stage, andPIPCO received partial payment against their lien claims but monies were still due. The plaintiff appealed. East Peoria,235 Ill. App. 3d at 759, 601 N.E.2d at 973-74.

On appeal, the appellate court held, inter alia, that the Bond Act mandated that the school district require the generalcontractor to provide a payment bond covering subcontractors and also that subcontractors were third-party beneficiaries ofthe payment bond provided for in the contract. East Peoria, 235 Ill. App. 3d at 759-62, 601 N.E.2d at 974-75. The EastPeoria court also stated that it would be meaningless to read the Bond Act requirements into the construction manageragreement, where the contractor agreed to pay all amounts due the trade contractors upon receipt of payment from theplaintiff and to submit satisfactory evidence that all indebtedness had been paid, without reading in third-party rights toenforce the statute. East Peoria, 235 Ill. App. 3d at 761, 601 N.E.2d at 975.

In our view, Western Waterproofing and East Peoria are instructive but are not analogous to the instant case because,although no bond was obtained in either of those cases, both Western Waterproofing and East Peoria held that the contractsentered into by the parties in those cases were entered into for the direct benefit of a third person. Western Waterproofing,669 F. Supp. at 904; East Peoria, 235 Ill. App. 3d at 761-62, 601 N.E.2d at 975-76. Thus, the contracts in both of thosecases constituted a basis for adjudging the subcontractors in those cases to be third-party beneficiaries. In the instant case,in contradistinction to those cases, the contract between PSA and Prairie State College does not contain any provisionindicating that the contract is entered into for the direct benefit of a third person.

Because of this distinction, Prairie State College in the instant case contends that Shaw was not an anticipated beneficiaryunder the contract and, therefore, has no standing to bring the actions. We agree that Shaw is not a direct beneficiary underthe contract pursuant to the purchase order contract between PSA and Prairie State College. However, in the instant case,Shaw alleges in the amended complaint in pertinent part:

"(10) Pursuant to section 1 of the Illinois Public Construction Bond Act, [citation], the College was obligated to provide apayment bond to assure payment to all subcontractors of PSA [including Shaw Industries] that would furnish labor ormaterials to be used in connection with PSA's performance of its obligations under the College's purchase order no. 31974."

While Prairie State College argues that Shaw was not a third-party beneficiary contemplated under the purchase ordercontract, "[t]he College does not contest that the provisions of the Bond Act are read into, and deemed a part of, everycontract in Illinois in which the requirements apply." Thus, no issue exists in the instant case that a third-party beneficiarycontract action can be asserted by an unpaid subcontractor against a public entity where such public entity has failed toprocure from the general contractor a payment bond as required by the Bond Act. See Western Waterproofing, 669 F. Supp.at 902. Shaw's complaint alleges that Shaw was a third-party beneficiary authorized to bring the cause of action pursuantto the Bond Act. We hold that the court erred in dismissing Shaw's complaint for failure to state a cause of action. Vernon,179 Ill. 2d at 344, 688 N.E.2d at 1175.

B

Prairie State College contends that, even as a third-party beneficiary, however, Shaw is required to file the cause of actionwithin the time constraints set forth in the Bond Act and that Shaw has failed to assert its claim in a timely manner. However, Shaw contends that because Prairie State College failed to procure a bond as mandated by section 1 of the BondAct (30 ILCS 550/1 (West 1998)), it was not required to comply with the six-month limitations period mandated under section 2 ofthe Bond Act. We disagree with Shaw's contention.

Section 2 of the Bond Act (30 ILCS 550/2 (West 1998)) provides, in pertinent part:

"that any person having a claim for labor, and material as aforesaid shall have no such right of action unless he shall havefiled a verified notice of said claim with the officer, board, bureau or department awarding the contract, within 180 daysafter the date of the last item of work or the furnishing of the last item of materials, and shall have furnished a copy of suchverified notice to the contractor within 10 days of the filing of the notice with the agency awarding the contract.

* * *

Provided, further, that no action shall be brought until the expiration of 120 days after the date of the last item of work orthe furnishing of the last item of materials, * * * nor shall any action of any kind be brought later than 6 months after theacceptance by the State or political subdivision thereof of the building project or work." (Emphasis added.) 30 ILCS 550/2(West 1998).

Shaw alleges that it last furnished material to PSA on or about February 27, 1997. On August 1, 1997, Shaw served PrairieState College and PSA with its "Notice Of Claim For Lien Against Public Funds And Claim On Contractor's Bond." OnAugust 4, 1997, Prairie State College's director of business services and controller responded to Shaw by advising Shaw, ina letter, that no bond existed: "This letter confirms that no bond was obtained for the Prairie State Associates carpetinstallation project at Prairie State College (6616-621)." The record does not indicate what "6616-621" denotes. Shawfiled suit against Prairie State College on August 18, 1998, for breach of contract as a third-party beneficiary under thecollege's contract with PSA.

Relative to Shaw's contention that its breach of contract claim is not subject to the six-month limitations period, Shaw citesno Illinois cases. Rather, Shaw urges our court to follow a 1992 decision by the Court of Appeals of Minnesota in GreenElectric Systems, Inc. v. Metropolitan Airports Comm'n, 486 N.W.2d 819 (Minn. App. 1992). However, for the followingreasons, we decline to do so.

In Green Electric, the Court of Appeals of Minnesota affirmed the district court's grant of summary judgment in thesubcontractor's, Green Electric's, favor because the public entity, Metropolitan Airports Commission, failed to obtain apayment bond as required under Minnesota's equivalent of the Bond Act. Green Electric, 486 N.W.2d at 823. The GreenElectric court reasoned that, because the public entity failed to obtain a payment bond as required under Section 574.28 ofthe Minnesota bond act (Minn. Stat.