The Illinois Legislature created the Mechanic's Lien Act (the "Act"), 770 ILCS 60/1 et seq., as a method to secure payment for contractors, subcontractors, and material suppliers on construction projects. The Act provides two separate and distinct remedies depending on whether the underlying construction is public or private. A separate remedy is provided for public projects simply because it would not be plausible to allow individuals to place liens against, and eventually foreclose upon public property. For public construction projects, the Act allows subcontractors and material suppliers to place a lien directly upon the funds being held by the public entity to pay for the project. This is known as a "Lien Against Public Funds," 770 ILCS 60.23.
According to the Act:
Any person who shall furnish material, apparatus, fixtures, machinery or labor to any contractor having a contract for public improvement for any county, township, school district, city, municipality, or municipal corporation in this State, shall have a lien for the value thereof on the money bonds, or warrants due or to become due the contractor having a contract with such county, township, school district, city, municipality, or municipal corporation in this State under such contract.
In plain language, a Lien Against Public Funds enables a subcontractor or material supplier to place a temporary freeze on the funds being held by the public entity for a specific construction project. This helps assure those without a direct contractual relationship with the public entity that they will receive payment for the services provided. Upon receipt of a valid Notice of Lien Against Public Funds, the public entity must withhold enough money from the general contractor to pay the lien claimant should it become necessary to do so.
To perfect a valid Lien Against Public Funds, the lienor must serve a Notice of Lien upon the public entity while it is still in possession of funds "due or to become due the contractor having a contract" with the public entity. This notice will not be considered timely if the funds have already been disbursed at the time the Notice of Lien is served. The notice is also untimely if the funds being held by the public entity at the time of service have been allocated for either another construction project, or even a separate portion of the same project. This is true even if there are considerable funds being withheld from the general contractor at the time the lien notice is received.
Thus, in order to perfect a timely Lien Against Public Funds, (1) a Notice of Lien must be served upon the public entity; (2) at a time when it is in possession of funds or due or to become due to the general contractor; and (3) such funds have not been allocated for another construction project or another portion of the same project. When served with a timely Lien Against Public Funds, the public entity must immediately withhold an amount sufficient to cover the lien from the general contractor. Failure to do so after receipt of a timely notice could result in a public entity having to pay twice for services rendered. There could also be additional liability imposed for any other damages which might be incurred. The Act provides that:
An officer of the State, county, township, school district, city, municipality or municipal corporation violating the duty hereby imposed upon them shall be liable on their official bond to the claimant giving notice as provided in this section for the damages resulting from such violation, which may be recovered in a civil action in the circuit court. 770 ILCS 60/23 (d).
The public entity does not have a duty to withhold the funds indefinitely, however. The Act requires that one claiming a Lien Against Public Funds must file suit to enforce the lien and serve the public entity with a copy of the suit within 90 days after giving notice of the lien. The failure to serve the public entity with a copy of the lawsuit within the 90 day time period results in the permanent loss of the lien. Once the lien is forfeited due to the expiration of the 90 day time period, no subsequent notice may be given for the same claim nor may that claim be asserted in any proceedings pursuant to the Act.
The public entity thus has the duty to withhold the funds subject to a timely lien notice until one of the following four events occurs:
The lien claim is released by the subcontractor/material supplier;
The lien claim is adjusted by agreement of all parties;
The time limit for filing a lawsuit has expired; or
If a lawsuit has been filed, then until there has been an adjudication of the same in a court of competent jurisdiction.
If a public entity makes a payment to the contractor prior the happening of one of these four events, such payment could constitute a wrongful payment under the Act and subject the public entity to liability.