DURATION OF PUBLIC PAYMENT BOND = FULL TERM OF PUBLIC CONTRACT

Posted on August 8, 2016August 8, 2016 by Edward Garber

Florida Statute s. 255.05 governs public payment bond rights on Florida public construction projects (other than Florida Department of Transportation projects). This is an important statute for all that perform Florida public construction work! (Check out this article for more information on s. 255.05 and this chart summarizing steps required to preserve payment bond rights.) If you are subcontractor, sub-subcontractor or supplier on a Florida public construction project, you want to understand what you need do to preserve and perfect payment bond rights to secure any potential nonpayment. And, if you are a prime contractor that furnished a public payment bond, you will likely be indemnifying your payment bond surety with respect to any payment bond claim. You want to know those payment bond claims that are worth fighting and those that are worth spending the time and effort on the frontend to efficiently resolve because payment bond claims create a statutory basis to recover attorney’s fees.

The recent opinion in Maschmeyer Concrete Co. of Florida v. American Southern Ins. Co., 2016 WL 3746379 (M.D.Fla. 2016) serves as an example of a contested public payment bond dispute between a supplier and payment bond surety. In this matter, a prime contractor was awarded a concrete repair and construction contract from the City of Orlando in 2011. The City’s acceptance letter to the prime contractor stated that the contract was for one year but could be renewed upon mutual agreement as provided in the City’s solicitation upon entering into an amendment to the contract. The terms of the solicitation and contract allowed the City to renew the contract for four additional one-year terms.

Before the expiration of initial one-year term, the City sent an amendment to the prime contractor renewing the contract for an additional year. The prime contractor signed the amendment. The amendment required the contractor to submit a public (payment) bond, which the contractor furnished. The bond stated that it was for a period of one year from 12/1/12 through 11/30/13.

Before the expiration of the second one-year term, the City sent another renewal amendment to the prime contractor renewing the contract for an additional year. The prime contractor signed the amendment. An updated bond was never furnished.

Before the expiration of the third one-year term, the City sent another renewal amendment to the prime contractor renewing the contract for an additional year. The prime contractor signed the amendment. An updated bond was never furnished. During this renewal period, a supplier furnished materials to the prime contractor that was utilized in the concrete repair and restoration work. The prime contractor did not pay the supplier and the supplier initiated an action against the prime contractor’s public payment bond.

The surety argued that the supplier did NOT have payment bond rights because the supplier furnished materials after the expiration of the payment bond—after the11/30/13 duration listed in the bond. The supplier argued that any expiration or duration limitation in the payment bond was unenforceable under s. 255.05 since a public payment bond cannot expand or limit the effective duration of the bond. Fla. Stat. s. 255.05(e). But, what does “effective duration of the bond” mean? “The only reasonable interpretation of ‘effective duration’ of the Statutory [public ] Bond is a bond duration that corresponds with the full term of the Public Work Contract identified on the face of the Statutory Bond or incorporated by reference in the Statutory Bond.” Maschmeyer Concrete Co. of Florida, 2016 WL at *4.

Here, although the contract was for a one-year term, the terms of the contract / solicitation allowed it to be renewed an additional four years. Thus, the City renewing the contract through amendments was authorized pursuant to the very contract that was identified and incorporated into the public payment bond. The fact that the bond was never updated is of no moment because the bond legally had to remain in effect during the duration of the contract.

Under the surety’s argument, the supplier was s*** out of luck because the supplier furnished materials outside of the bond’s listed duration. Hence, the supplier was furnishing materials to a project where there was no bond to protect its financial interests. This gotcha-type argument does not seem reasonable. There was a bond in place because the City required a bond. Whether that bond was renewed or not should not make a difference because the contract was still in effect and the prime contractor was still performing under the contract after the listed duration in the bond. To punish a supplier because the base contract is still in effect and being performed makes no rationale sense. What does make sense, however, is that as long as a prime contractor is still performing base contract work, the public payment bond is still in effect to secure any potential nonpayment.

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.

QUICK NOTE: TIMING TO SUE PUBLIC PAYMENT BOND FOR RETAINAGE ON PUBLIC CONSTRUCTION PROJECTS

Posted on April 22, 2016April 22, 2016 by Edward Garber

You are a subcontractor (or sub-subcontractor) on a public construction project. The general contractor has a public payment bond per Florida Statute s. 255.05. You finished your scope some time ago but you are still owed retainage. When do you sue for retainage? There is a statutory retainage exception that governs the timing of when to sue for retainage. Check out this article for the applicable statutory language regarding the retainage exception. Timing is important to ensure that you do not prematurely sue for retainage or, worse, sue for retaiange after the statute of limitations expired.

CHART SUMMARIZING ENFORCEMENT OF CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS

Posted on December 30, 2014December 30, 2014 by Edward Garber

Previously, I included a chart that summarizes the preliminary notice requirements for construction liens and payment bonds in Florida. This chart focuses on steps a potential lienor / claimant must undertake to preserve lien or payment bond rights.

Now that the lienor / claimant preserved its rights to record a lien or pursue a claim against the payment bond, what are the next steps to undertake if in fact that lienor is owed money? To follow-up on this preliminary notice chart is a chart that summarizes these next steps of enforcing the lienor’s / claimant’s rights against the real property (in the case of a lien) or the payment bond.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2015/07/lien-chart.pdf”]

CHART SUMMARIZING PRELIMINARY NOTICE REQUIREMENTS FOR LIENS AND PAYMENT BONDS

Posted on December 16, 2014December 16, 2014 by Edward Garber

In previous articles, I discussed preliminary notice requirements to properly preserve construction liens and payment bonds on private projects, payment bonds on public projects, and public payments bonds for Florida Department of Transportation (FDOT) projects. Now, how about a chart that assists in summarizing this information:

[ws_table id=”1″]

SERVING REQUESTS FOR SWORN STATEMENTS OF ACCOUNT UNDER FLORIDA’S LIEN LAW

Posted on August 14, 2014August 14, 2014 by Edward Garber

Florida Statute s. 713.16 provides a useful vehicle under Florida’s Lien Law for parties on private projects to serve a Request for a Sworn Statement of Account on another party to potentially deprive: (a) a lienor (contractor, subcontractor, supplier, design professional) of lien / bond rights or (b) an owner of the right to recover attorney’s fees in an action to enforce a lien. An unsuspecting party that receives a Request for a Sworn Statement of Account could find itself in an undesirable position by failing to respond within 30 days after the Request.

A. An Owner Serving a Request for Sworn Statement of Account

Section 713.16(2) authorizes an owner to serve a Request for Sworn Statement of Account:

“The owner may serve in writing a demand of any lienor for a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement by the lienor. Any such demand to a lienor must be served on the lienor at the address and to the attention of any person who is designated to receive the demand in the notice to owner served by such lienor and must include a description of the property and the names of the owner, the contractor, and the lienor’s customer, as set forth in the lienor’s notice to owner….The failure or refusal to furnish the statement under oath within 30 days after the demand, or the furnishing of a false or fraudulent statement, deprives the person so failing or refusing to furnish such statement of his or her lien….The failure to furnish a response to a demand for statement of account does not affect the validity of any claim of lien being enforced through a foreclosure case filed before the date the demand for statement is received by the lienor.”

This is a useful tool for an owner that wants to obtain accounting information of a lienor that served it with a notice to owner or recorded a lien on the owner’s property. The statutory form for this Request is set forth below. If the lienor neglects to respond within 30 days after the Request, the owner has the argument that the lienor lost its lien rights by failing to respond. The Request needs to be served via certified mail, return receipt requested, or by a common carrier delivery service such as FedEx where the receipt of the Request is tracked.

REQUEST FOR SWORN STATEMENT OF ACCOUNT

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT, SIGNED UNDER OATH, WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR LIEN.

To: (Lienor’s name and address)

The undersigned hereby demands a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement for the improvement of real property identified as (property description) .

(name of contractor)

(name of the lienor’s customer, as set forth in the lienor’s Notice to Owner, if such notice has been served)

(signature and address of owner)

(date of request for sworn statement of account)

B. A Contractor Furnishing a Payment Bond Serving a Request for Sworn Statement of Account

Section 713.16(4) authorizes a contractor that furnished a payment bond on a private project to serve a Request for Sworn Statement of Account on a lienor (sub-subcontractor or supplier that served a notice to owner / notice to contractor):

“When a contractor has furnished a payment bond pursuant to s. 713.23, he or she may, when an owner makes any payment to the contractor or directly to a lienor, serve a written demand on any other lienor for a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement by the lienor.”

Florida Statute s. 255.05(8) (governing Florida public projects) similarly authorizes a contractor that furnished a payment bond on a Florida public project to serve a Request for Sworn Statement of Account on a claimant not in privity of contract with the contractor when the contractor receives payment from the public body.

The requirements for a contractor serving the Request are ultimately the same as the owner, except the contractor can only serve the Request when it furnishes a payment bond (since the owner’s property is exempt from liens) and the owner makes a payment to the contractor or a lienor (bond claimant). The failure to respond within 30 days after the Request should deprive the bond claimant of its rights under the payment bond.

C. A Lienor that Recorded a Lien Serving a Request for Sworn Statement of Account

Section 713.16(5) authorizes a lienor that recorded a lien to serve a Request for Sworn Statement of Account on the owner:

“Any lienor who is perfecting a claim of lien may serve with the claim of lien or thereafter a written demand on the owner for a written statement under oath showing:

1. The amount of the direct contract under which the lien was recorded;

2. The dates and amounts paid or to be paid by or on behalf of the owner for all improvements described in the direct contract;

3. The reasonable estimated costs of completing the direct contract under which the lien was claimed pursuant to the scope of the direct contract; and

4. If known, the actual cost of completion.”

The form of this request is different than the request served by the owner and needs to include the below warning on the top along with a request for the 4 categories (referenced above) taken from the statute. An owner that does not provide the statement within 30 days after the Request is not deemed the prevailing party for purposes of attorney’s fees.

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR RIGHT TO RECOVER ATTORNEY FEES IN ANY ACTION TO ENFORCE THE CLAIM OF LIEN OF THE PERSON REQUESTING THIS STATEMENT.

Serving a Request for Sworn Statement of Account is a useful vehicle in an impending construction dispute. As shown above, this vehicle can be served by an owner, a contractor, or a lienor depending on the circumstances. Do NOT neglect the utility of serving a Request; and, do NOT ignore a Request if in receipt of one!

IMPORTANT BULLET POINTS FOR PAYMENT BONDS ON FLORIDA PUBLIC PROJECTS (FLA. STAT. s. 255.05)

Posted on June 28, 2014June 28, 2014 by Edward Garber

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).

SUBCONTRACTORS – READ AND UNDERSTAND THE IMPLICATIONS OF VENUE PROVISIONS

Posted on May 15, 2013May 15, 2013 by Edward Garber

Subcontracts often have venue provisions. However, these are often overlooked until a dispute arises. In many instances, the venue provision requires disputes to be brought in a court in a different venue than where the project is located. This could have the adverse effect of exposing a subcontractor, in particular, to disputes in multiple forums. The recent case of East Coast Metal Decks, Inc. v. Boran Craig Barber Engel Construction Co., Inc., 38 Fla. L. Weekly D1061a (Fla. 2d DCA 2013), explains the undesirable dynamics of venue provisions.
In East Coast Metal Decks, the general contractor hired the subcontractor on two public projects in Brevard County and Sarasota County. The general contractor, however, sued the subcontractor in Collier County due to a venue provision in the subcontract. The subcontractor brought the general contractor’s payment bond surety into the fold and then tried to transfer the venue to Brevard County because the subcontractor was being sued by material suppliers in that County. The trial court denied the transfer of venue because of the Collier County venue provision in the subcontract.

On appeal, the Second District affirmed the trial court’s ruling. The Second District found that (i) the parties were bound by the subcontract venue provision as there was not a compelling reason not to enforce the provision and (ii) because the payment bond was a public payment issued under Florida Statute s. 255.05, venue for a claim against the bond did not have to lie in Brevard County (where the project was located).

What does this case mean? Well, it means that the subcontractor needs to litigate with the suppliers in Brevard County and litigate with the general contractor in Collier County even though the disputes are related. Most likely, the suppliers sued the subcontractor because they were not paid and the general contractor did not pay the subcontractor due to the facts related to the general contractor’s claim against the subcontractor in Collier County.
Litigation in different counties over a related dispute can become expensive and undesirable. It is important to understand and consider the impact of venue provisions in contracts. Sometimes, it makes sense to argue the compelling reasons why the venue provision should not be enforced. However, courts do favor venue provisions because that is what parties negotiated and agreed to on the front-end. Other times, it makes sense to resolve the smaller lawsuits or lawsuits where the facts may not be in your favor (such as a subcontractor’s lawsuit with a supplier) to focus on the lawsuit with more upside (the subcontractor’s lawsuit with the general contractor or payment bond surety).