Contractors that work on Florida state and local government construction projects (non-FDOT projects) must be familiar with Florida Statute s. 255.05. This statute governs the payment bond (and performance bond) the general contractor is required to provide for public projects in excess of $200,000. (No payment bond is statutorily required for projects in the amount of $100,000 or less and the public body has discretion waiving the bond requirement for projects in the amount of $200,000 or less.)
Here are important bullet points regarding payment bonds for public projects required by s. 255.05:
- The general contractor (hired by the public body) is required to execute and record the payment bond (and performance bond) in the public records where the project is located. Fla. Stat. s. 255.05(1).
- The public body is not supposed to make payment to the contractor until it receives a certified copy of the recorded bond. Fla. Stat. s. 255.05(1)(b).
- The bond must state on the front page the “name, principal business address, and phone number of the contractor, the surety, the owner of the property being improved and, if different from the owner, the contracting public entity.” Fla. Stat. s. 255.05(1)(a). The bond should also contain reference to s. 255.05 and contain reference to the notice and time limitation provisions in subsections (2) and (10) (as referenced in subsequent bullet points). Fla. Stat. s. 255.05(6). Notwithstanding, the payment bond “shall be construed and deemed statutory payment bonds…and such bonds shall not under any circumstances be converted into common law bonds.” Fla. Stat. s. 255.05(4).
- Any provision in payment bonds issued after October 1, 2012 that “further restricts the classes of persons protected by the bond, which restricts the venue of any proceeding relating to such bond, which limits or expands the effective duration of the bond, or which adds conditions precedent to the enforcement of a claim against the bond beyond those provided in this section is unenforceable.” Fla. Stat. s. 255.05(1)(e).
- “A claimant, except a laborer, who is not in privity with the contractor shall, before commencing or not later than 45 days after commencing to furnish labor, services, or materials for the prosecution of the work, furnish the contractor with a written notice that he or she intends to look to the bond for protection.” Fla. Stat. s. 255.05(2)(a)(2). This is the same notice of intent to look to the bond required by those not in privity with the general contractor that have issued payment bonds on private projects (see https://floridaconstru.wpengine.com/serving-preliminary-lien-payment-bond-notices-on-private-projects/). Note, however, that the timing of serving this notice would be different if the payment bond were issued on an FDOT project (see https://floridaconstru.wpengine.com/payment-bonds-and-preliminary-notice-requierments-for-florida-department-of-transportation-fdot-projects/).
- A claimant not in privity with the general contractor shall serve a written notice of nonpayment on the contractor and surety no later than 90 days after final furnishing. Fla. Stat. s. 255.05(2)(a)(2). The notice must specify the portion of the nonpayment amount designated as retainage. Id. Note, however, that this requirement differs from payment bonds for private projects where all claimants are required to serve the notice of nonpayment even if in privity with the general contractor. Here, only those claimants not in privity with the general contractor need to serve the written notice of nonpayment.
- A claimant has one year from final furnishing to file an action on the payment bond. Fla. Stat. s. 255.05(10). However, there is an exception for retainage:
“An action for recovery of retainage must be instituted against the contractor or the surety within 1 year after the performance of the labor or completion of delivery of the materials or supplies; however, such an action may not be instituted until one of the following conditions is satisfied:
(a) The public entity has paid out the claimant’s retainage to the contractor, and the time provided under s. 218.735 or s. 255.073(3) for payment of that retainage to the claimant has expired;
(b) The claimant has completed all work required under its contract and 70 days have passed since the contractor sent its final payment request to the public entity; or
(c) At least 160 days have passed since reaching substantial completion of the construction services purchased, as defined in the contract, or if not defined in the contract, since reaching beneficial occupancy or use of the project.
(d) The claimant has asked the contractor, in writing, for any of the following information and the contractor has failed to respond to the claimant’s request, in writing, within 10 days after receipt of the request:
1. Whether the project has reached substantial completion, as that term is defined in the contract, or if not defined in the contract, if beneficial occupancy or use of the project has occurred.
2. Whether the contractor has received payment of the claimant’s retainage, and if so, the date the retainage was received by the contractor.
3. Whether the contractor has sent its final payment request to the public entity, and if so, the date on which the final payment request was sent.
If none of the conditions described in paragraph (a), paragraph (b), paragraph (c), or paragraph (d) is satisfied and an action for recovery of retainage cannot be instituted within the 1-year limitation period set forth in this subsection, this limitation period shall be extended until 120 days after one of these conditions is satisfied.”
Now, what happens if the recorded bond does not specifically reference s. 255.05 or the notice and time provisions of the statute as required by the statute in s. 255.05(6)? This issue was decided by the Florida Supreme Court in American Home Assur. Co. v. Plaza Materials Corp., 908 So.2d 360, 370 (Fla. 2005), where the Court held:
“[W]e conclude that the notice and time limitation provisions of section 255.05(2) may be enforceable, even where the statutory payment bond at issue does not contain reference to those notice and time limitation provisions in accordance with section 255.05(6). Once the claimant upon the bond makes a prima facie showing that the bond is facially deficient within the context of the statute and establishes by a preponderance of the evidence that the claimant did not have actual notice of the provision, the surety is estopped from attempting to enforce those provisions.”
In other words, the bond is not going to be converted into a common law bond which would deem the required notice provisions unenforceable. This showing by a claimant is actually a challenging hurdle to overcome, especially for a claimant that performs work on public projects and should know the notice requirements for public payment bonds!
Now, what happens if the bond is not recorded in the public records? The same holding and potential hurdle would likely apply. See Ardaman & Associates, Inc. v. Travelers Cas. And Sur. Co. of America, 2009 WL 161203 (N.D.Fla. 2009) (relying on the Florida Supreme Court’s decision in American Home Assur. to find that a payment bond not recorded on an FDOT project pursuant to Florida Statute s. 337.18 should be subject to the same analysis).
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.