QUICK NOTE: USE COUNSEL WHEN PREPARING A NOTICE OF NONPAYMENT

Posted on July 12, 2020July 12, 2020 by Edward Garber

If you are a subcontractor or supplier working on a private construction project, you always want to pull up the Notice of Commencement from the public records to see if there is a payment bond in place. If there is not, you know you have to preserve your construction lien rights as to the real property (the project). If there is, you know you will have to preserve your rights against the payment bond.

In an earlier posting, I discussed statutory changes changes to notices of nonpayment that were to take effect as of October 1, 2019. A notice of nonpayment must be served by the unpaid claimant within 90 days of its final furnishing to preserve payment bond rights (for amounts above 10% retainage). These changes have gone into effect and are important for a claimant to know in order to preserve rights against an unconditional payment bond issued per Florida Statute s. 713.23. (If you are unsure about your rights relative to a payment bond, please work with counsel to ensure your rights are protected!) The notice of nonpayment is a statutory form that will need to be notarized by the claimant. The claimant should sign/notarize because the notice of nonpayment is reflecting amounts owed including retainage, the amount paid, and the approximate amount of money associated with to-be-performed work.

One of the recent statutory changes is that:

A claimant who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration.

It is uncertain how this will be applied to notices of nonpayment other than this mimics language relative to a “fraudulent lien.” One of the defenses to a fraudulent lien is known as the advice of counsel defense. It logically makes sense that this advice of counsel defense will also apply to the preparation of notices of nonpayment. For this important reason, a claimant should work with counsel and have its counsel prepare the notice of nonpayment with the relevant accounting information, whether it be a payment application(s), a change order log, an accounting summary, or potential change orders and issued back-charges. This will facilitate a discussion as to amounts to include and will support an advice of counsel defense. No different than a lienor using a lawyer to prepare a lien (and I would encourage all lienors to utilize counsel for lien preparation), a claimant should use a lawyer to prepare a notice of nonpayment.

Please let me know if you need assistance with preserving payment bond rights

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: MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

Posted on April 23, 2020April 23, 2020 by Edward Garber

In today’s current climate, you do not want to wait until the last minute to record your construction lien or serve your notice of nonpayment to preserve your payment bond rights. Operate conservatively and preserve these rights now, not later. Whether preserving construction lien or payment bond rights, the key date is 90-days from your final furnishing date. A construction lien must be recorded within 90 days from your final furnishing date. Likewise, a notice of nonpayment (to preserve payment bond rights on a private project) needs to be served within 90 days from your final furnishing date.

It is important to remember that performing punchlist, warranty, and corrective work does NOT extend your final furnishing date. In other words, do not think you can record a lien or serve your notice of nonpayment within 90 days from completing punchlist or warranty work. That would be a bad idea. See, e.g., Delta Fire Sprinklers, Inc. v. Onebeacon Ins. Co., 937 So.2d 695 (Fla. 5th DCA 2006) (performing punchlist items insufficient for extending final furnishing date in order for subcontractor to timely serve its notice of nonpayment).

MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

QUICK NOTE: FRAUDULENT NOTICE OF NONPAYMENT

Posted on March 1, 2020March 1, 2020 by Edward Garber

There is a defense to construction liens raised by owners known as the fraudulent lien defense. A party can assert a fraudulent lien as an affirmative defense or as an affirmative claim. This is embodied in Florida Statute s. 713.31.

Recently, with respect to payment bond claims, there is also a defense relating to a party’s fraudulent notice of nonpayment. This fraudulent notice of nonpayment defense mimics the fraudulent lien defense and provides:

A lienor who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the lienor has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond. The service of a fraudulent notice of nonpayment is a complete defense to the lienor’s claim against the bond.

Fla. Stat. s. 713.23(1)(d); 255.05(2)(a)(2).

It can be expected that any party required to serve a notice of nonpayment will receive as an affirmative defense to a payment bond lawsuit that the notice of nonpayment was fraudulent. There has not been a case as of yet to apply a standard to this defense so it is presumed that the standard will be fairly consistent with the standard applied to fraudulent liens. Nonetheless, even if the standard is challenging, this will be an expected defense where notices of nonpayment will be challenged as being fraudulent. Also, a claimant that is not required to serve a notice of nonpayment to preserve its payment bond rights will not have to deal with this notice of nonpayment defense.

If you need to serve a notice of nonpayment to preserve payment bond rights or, alternatively, are the recipient of a notice of nonpayment, it is prudent to consult with counsel to ensure your rights are appropriately preserved and protected. When dealing with fraudulent liens, a lienor can rely on advice of counsel if the lien is prepared by counsel. Presumably, a claimant that serves a notice of nonpayment should be able to rely on advice of counsel too if the notice of nonpayment was prepared by counsel.

SERVING NOTICE OF NONPAYMENT UNDER MILLER ACT

Posted on October 27, 2019October 27, 2019 by Edward Garber

Under the federal Miller Act, if a claimant is NOT in privity with the prime contractor, it needs to serve a “notice of nonpayment” within 90 days of its final furnishing. In this manner, 40 U.S.C. 3133 (b)(2) states:

A person having a direct contractual relationship with a subcontractor but no contractual relationship, express or implied, with the contractor furnishing the payment bond may bring a civil action on the payment bond on giving written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made. The action must state with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. The notice shall be served–

(A) by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor’s residence; or

(B) in any manner in which the United States marshal of the district in which the public improvement is situated by law may serve summons.

Although the bolded language states that, “The action must state with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done…,” courts have found that this requirement also applies to the notice of nonpayment. See Prince Payne Enterprises, Inc. f/u/b/o Prince Payne Enterprises, Inc. v. Tigua Enterprises, Inc., 2019 WL 5394197, *4 (D. South Carolina 2019).

However, there is a certain liberality regarding the format of the notice as long as it states with substantial accuracy the amount claimed and the name of the party to whom the work was done.

For instance, in Prince Payne Enterprises, a sub-subcontractor—not in privity with the prime contractor—filed a Miller Act payment bond lawsuit. To support that it provided a notice of nonpayment to the prime contractor, the sub-subcontractor attached a hodgepodge of documentation, none of which was applicable, to its complaint, as well as alleged that it demanded payment from the prime contractor within 90 days of its final furnishing date on the project. The prime contractor moved to dismiss the Miller Act payment bond claim based on the inapplicability of the hodgepodge of documentation which included letters that came after the 90 days expired. But, based on the allegation that the sub-subcontractor demanded payment on the prime contractor, the Court held:

While the dates and contents of the attached exhibits may not meet the notice requirements of the Miller Act, the court must accept the allegation that Prince Payne [sub-subcontractor] demanded payment from Tigua [prime contractor] within ninety days of last performing work as true. Discovery may reveal that this is not true or that none of the communications satisfy the Miller Act’s notice requirements; however, at this early stage of litigation, the court finds that Prince Payne’s proposed amended complaint sufficiently alleges a viable cause of action for a violation of the Miller Act.

Prince Payne Enterprises, supra, at *4.

This sub-subcontractor is likely in trouble supporting that it served a notice of nonpayment within 90 days of its final furnishing date. However, it lived to see another day by surviving a motion to dismiss. Summary judgment will be different. This could have been avoided had the sub-subcontractor appreciated that to preserve a Miller Act payment bond claim, it MUST serve a notice of nonpayment within 90 days of its final furnishing. Rights preservation is everything!

STATUTORY CHANGE TO NOTICES OF NONPAYMENT TO PRESERVE RIGHTS UNDER PAYMENT BOND

Posted on September 3, 2019March 1, 2020 by Edward Garber

Mark this on your calendar – beginning on October 1, 2019 subcontractors and suppliers (e.g., claimants/lienors) serving a notice of nonpayment to preserve rights under a payment bond must now do so under oath. But, that is not all. The notice of nonpayment form will now require the claimant to attest, as follows, in the new notice of nonpayment form:

Notice of Nonpayment

To: (Name of Contractor and address)
(Name of Surety and address)

The undersigned notifies you that:

1. The lienor has furnished_______ (describe labor, services, or materials) for the improvement of the real property identified as_______ (property description). The corresponding amount unpaid to date is $______, of which, $______ is unpaid retainage.
2. The lienor has been paid to date the amount of $____ for previously furnishing________ (describe labor, services, or materials) for this improvement.
3. The lienor expects to furnish________ (describe labor, services, or materials) for this improvement in the future (if known), and the corresponding amount expected to become due is $_____ (if known).

I declare that I have read the foregoing Notice of Nonpayment and that the facts stated in it are true to the best of my knowledge and belief.

Dated on _______

(signature and address of lienor)

The foregoing instrument was sworn to (or affirmed) and subscribed before me this___ days of ____, _____, by __________(signatory)

(Signature of Notary Public-State of Florida)

(Print, Type, or Stamp Commissioned Name of Notary Public)

Personally Known OR Produced Identification

Type of Identification Produced____

It will be imperative to work with counsel when putting together a notice of nonpayment. The reason being is that the added language in the statute will give the contractor a built-in “fraud” defense upon receipt of any notice of nonpayment. Fraudulent notices of nonpayment will now be asserted defensively as a matter of course akin to the fraudulent lien defense when a construction lien is recorded. This is supported by new statutory language to Florida Statute sections 713.23 (dealing payment bonds on private projects) and 255.05 (dealing with payment bonds on public projects except FDOT projects) relative to notices of nonpayment that goes into effect on October 1, 2019:

The negligent inclusion or omission of any information in the notice of nonpayment that has not prejudiced the contractor or surety does not constitute a default that operates to defeat an otherwise valid bond claim. A claimant who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond. The service of a fraudulent notice of nonpayment is a complete defense to the claimant’s claim against the bond.

Again, it is imperative to work with counsel when putting together a notice of nonpayment!

MILLER ACT AND TIMELY SERVING NOTICE OF NON-PAYMENT WITHIN 90 DAYS OF LAST FURNISHING

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

Federal district courts interpreting the Miller Act provide value to those prime contractors, subcontractors, suppliers, and sub-subcontractors that work on federal construction projects, even if the decisions and projects are outside of Florida.

Remember, the Miller Act requires sub-subcontractors and suppliers in direct contract with a subcontractor but that have no contractual relationship with the prime contractor to serve a notice of non-payment to the prime contractor within 90 days from their last furnishing of labor or materials to the subcontractor. Failure to provide this notice will result in a very strong defense from the prime contractor and surety that the supplier or sub-subcontractor has NO Miller Act payment bond rights. Do not…let me repeat, do not…put yourself in this position if you are a supplier or sub-subcontractor on a federal project. And, if you are a prime contractor or surety defending a Miller Act payment bond claim from a sub-subcontractor or supplier, analyze whether the claimant timely served its notice of non-payment within 90 days from its last furnishing to the subcontractor.

For example, in U.S. ex rel. Sun Coast Contracting Services, LLC v. DQSI, LLC, 2014 WL 5431373 (M.D.La. 2014), a sub-subcontractor initiated a Miller Act payment bond claim. But–and this is a big but–the sub-subcontractor could not dispute the fact that it independently failed to serve a notice of non-payment within 90 days from its last furnishing to the subcontractor that hired it. Instead, the sub-subcontractor argued that a notice of non-payment from the subcontractor to the prime contractor served as its notice since it included amounts the subcontractor owed to it. Yet, the letter that the sub-subcontractor relied on never mentioned the sub-subcontractor or the amount the subcontractor owed to the sub-subcontractor. Therefore, it was easy for the federal district court to conclude that the sub-subcontractor had NO Miller Act payment bond rights:

Beyond SCCS’s [subcontractors] letter, whose content did not even allude to the existence of a claim by Plaintiff [sub-subcontractor], Plaintiff has not put forth any assertion that it communicated its claim to DQSI [prime contractor] within ninety days after the date of Plaintiffs last performance on the project. By failing to provide proper notice according to statutory requirements, Plaintiff has no right to sue Defendants DQSI or Western Surety under the Miller Act.

Sun Coast Contracting Services, LLC, supra, at *4.

While federal courts liberally construe the method of service of the notice of non-payment from the supplier or sub-subcontractor to the prime contractor, it really should never get to this point as it simply gives the prime contractor and surety a legitimate defense to a Miller Act claim. If you are a supplier or sub-subcontractor, do NOT deal with this unnecessary headache. Properly preserve your Miller Act payment bond rights. On the other hand, if you are a prime contractor or surety, you should absolutely explore whether the Miller Act payment bond claimant properly preserved its payment bond rights and, if not, defend the claim based on this failure.

MILLER ACT REQUIREMENT FOR SUPPLIER ON AN ONGOING OR OPEN ACCOUNT

Posted on July 1, 2014July 1, 2014 by Edward Garber

Suppliers oftentimes rent or furnish supplies or equipment on credit to a customer (such as a subcontractor) on an ongoing or open account. Under this scenario, the supplier typically has its customer enter into a credit application (ideally, where there is a personal guarantor) and then there may be a sales or rental agreement (or purchase order) documenting the costs of the supplies bought or rented in accordance with the account.

The case of Romona Equipment Rental, Inc. ex rel. U.S. v. Carolina Casualty Ins. Co., 2014 WL 2782200 (9^th Cir. 2014), illustrates an argument raised against a supplier of rental equipment in a federal Miller Act payment bond action when the supplier rented equipment to a subcontractor on an open account. In this case, the subcontractor entered into a credit application with the supplier that established the open account for the subcontractor to rent equipment on a federal construction project. The rental equipment that the subcontractor would utilize would be documented by rental agreements and corresponding invoices. The subcontractor entered into 89 rental agreements with the supplier where the supplier furnished the rental equipment on credit. Around this time, the prime contractor terminated the subcontractor from the project leaving the subcontractor owing the supplier substantial sums of money for the rental equipment.

The supplier served the prime contractor with its notice of nonpayment within 90 days of the last day it furnished rental equipment (as it was required to do under the Miller Act since the supplier was not in privity of contract with the prime contractor). The supplier then filed suit against the prime contractor’s Miller Act payment bond for the unpaid rental charges. The prime contractor and surety argued that the supplier’s notice of nonpayment was untimely as to ALL the rental equipment furnished to the construction project more than 90 days before service of the notice. The prime contractor and surety further argued that the supplier failed to mitigate its damages by continuing to supply equipment despite nonpayment. At trial, the district court held that the supplier’s notice of nonpayment covered ALL rental equipment the supplier furnished to the subcontractor for the project in light of the open book account. The district court further held that the supplier’s duty to mitigate damages occurred 4 days after the subcontractor was terminated and, therefore, the supplier was not entitled to recover for rental equipment after this date.

The main issue on appeal to the Ninth Circuit Court of Appeals was whether the supplier’s notice of nonpayment was timely as to ALL rental equipment furnished on an open book account more than 90 days before the notice. Stated differently, the issue was whether each rental agreement created, in essence, a separate contract with a separate requirement to serve a notice of nonpayment within 90 days from the last date the specific equipment was furnished pursuant to each rental agreement. The Ninth Circuit, relying on precedent from the First, Fourth, and Fifth Circuits, affirmed that: “if all the goods in a series of deliveries by a supplier on an open book account are used on the same government project, the ninety-day notice is timely as to all of the deliveries if it is given within ninety days from the last delivery.” Romona Equipment Rental, supra, at *3. This is a good ruling for suppliers!

Interestingly, while the Ninth Circuit agreed with the district court as to the date when the supplier’s duty to mitigate occurred (4 days after the subcontractor was terminated), there was discussion on this issue. It turned out that the subcontractor originally paid its supplier the first 9 invoices for rental equipment, but then only paid 2 of the remaining invoices. The supplier ceased renting equipment to the subcontractor when it learned that the subcontractor was terminated from the project. Yet, before the subcontractor was actually terminated, the subcontractor and prime contractor were trying to resolve the issues that led to the subcontractor’s termination (not uncommon). Thus, the supplier had a good faith belief that the issues would get resolved and it would get paid. Also, the subcontractor and supplier had a longstanding relationship and the supplier was currently furnishing equipment on another federal project and was being paid by the subcontractor. For these reasons, the Ninth Circuit explained that, “Although Ramona [supplier] failed to alert Candelaria [prime contractor] to Otay’s [subcontractor] delinquency until the seventy-eight invoices from Otay were overdue, this does not render the district court’s conclusion-that Romona had commercially reasonable justifications for choosing not to mitigate its damages prior to June 10, 2008 [4 days after the termination]—illogical.” Romona Equipment Rental, supra, at *4.

This dialogue raises an interesting issue regarding the mitigation of damages defense (or duty to mitigate losses/damages) raised by a prime contractor or surety when a supplier goes unpaid for an extended period of time but continues to furnish supplies or equipment. The point of termination raised an easy line of demarcation as to when the credit for rental equipment needed to be cut off. But, what if the subcontractor was not terminated and the supplier continued to rent equipment despite nonpayment? Even though the supplier typically expects payment net 30 days and does not have a pay-when-paid provision in its rental agreements or purchase orders, it still many times will give its customer (e.g., subcontractor) the appropriate slack while its customer is awaiting payment, especially a longstanding customer, a good customer, or when it has a good faith belief that it will ultimately get paid. Also, as it relates to rental equipment, while the supplier can stop furnishing new rental equipment, it is not that easy simply showing up to a project (let alone a federal project) unannounced and removing equipment being rented on a monthly or daily rate. So, there are definitely commercially reasonable justifications where a supplier will continue to let an account grow when it is not getting timely paid. The key for the supplier to establish that it tried to mitigate its losses is to lay the foundation that it sent communications to its customer and its customer’s customer (such as the prime contractor) regarding the delinquent account and its expectation that the equipment be returned when it becomes apparent (or the supplier is concerned) that it may not get paid (or when it no longer has the good faith belief that it will get paid). In Romona Equipment Rental, although the prime contractor likely knew the subcontractor was renting construction equipment (and was not in a position to pay unless the subcontractor received payment), the prime contractor still argued that the supplier should have notified the prime contractor of the subcontractor’s delinquent account as a means to mitigate damages.

For more information on a supplier’s burden of proof in a Miller Act action, please see: https://floridaconstru.wpengine.com/suppliers-burden-of-proof-in-a-miller-act-payment-bond-claim/.

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).

SERVING PRELIMINARY LIEN / PAYMENT BOND NOTICES ON PRIVATE PROJECTS

Posted on June 19, 2014June 19, 2014 by Edward Garber

Subcontractors and suppliers need to know the preliminary notices (such as a Notice to Owner for liens or Notice to Contractor for payment bonds) that need to be served to preserve their lien or payment bond rights on private projects.

A. Obtaining a Copy of the Notice of Commencement

The first thing a potential lienor should do is obtain the Notice of Commencement for the project (or any Amended Notice of Commencement). The Notice of Commencement will be recorded in the official records where the project is located and will provide a potential lienor with a description of the real property, the owner’s information, the contractor’s information, the construction lender’s information, whether the contractor has a payment bond (which should be recorded with the Notice of Commencement), and persons other than the owner that the Notice to Owner needs to be served on.

B. Preliminary Notices for Liens- the Notice to Owner

If there is no payment bond recorded with the Notice of Commencement, then the potential lienor knows it wants to preserve its lien rights. Entities not in privity of contract with the owner will need to serve a Notice to Owner. The Notice to Owner must set “forth the lienor’s name and address, a description sufficient for identification of the real property, and the nature of the services or materials furnished or to be furnished.” Fla. Stat. s. 713.06(2). A statutory form is included in Florida’s Lien Law (Florida States Chapter 713) and set forth at the bottom of this posting. Importantly, the Notice to Owner must be served by the potential lienor “before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials.” Fla. Stat. s. 713.06(2). The key is that the Notice to Owner must be served within 45 days of the entity’s initial furnishing. For instance, a supplier’s initial furnishing is when the materials arrive on site. However, a supplier of specially fabricated material’s initial furnishing is when the supplier started fabrication irrespective of when the materials arrived on site. A company supplying construction rental equipment’s initial furnishing is when the rental equipment arrived on site. And, a subcontractor’s initial furnishing is when it first starts to furnish labor, services, or materials for the project. Again, there is no reason to delay serving the Notice to Owner – it should be served immediately as a matter of course.

A copy of the Notice to Owner should be served on the contractor if the potential lienor was not hired by the contractor in addition to the potential lienor’s customer’s customer. In other words: “A sub-subcontractor or a materialman to a subcontractor must serve a copy of the notice on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor shall serve the notice to owner on the subcontractor [potential lienor’s customer’s customer] if the materialman knows the name and address of the subcontractor.” Fla. Stat. 713.06(2). (Lien rights, however, are not automatic in that the further removed an entity is from the owner may impact whether or not that entity has lien rights. For example, a sub-sub-subcontractor does not have lien rights and a supplier to a supplier is not going to have lien rights. On the other hand, sub-subcontractors will have lien rights and a supplier to a sub-subcontractor should also have lien rights.)

C. Preliminary Notices for Payment Bonds-the Notice to Contractor and the Notice of Nonpayment

Now, if there is a payment bond in place, the owner’s property is exempt from liens and the entities should look to the payment bond for payment. In this case, entities not in privity of contract with the general / prime contractor “before beginning or within 45 days after beginning to furnish labor, materials, or supplies…shall serve the contractor with notice in writing that the lienor will look to the contractor’s bond for protection on the work.” Fla. Stat. s. 713.23(1)(c). Similar to the Notice to Owner, this Notice to Contractor of the potential lienor’s intent to look to the bond must be served within 45 days of initial furnishing. A statutory form for this notice is also included in Florida’s Lien Law and further set forth at the bottom of this posting. Importantly, if a lienor is unsure and/or wants to preserve both lien and payment bond rights the lienor can combine the Notice to Owner form with the Notice to Contractor form by calling the Notice to Owner form “NOTICE TO OWNER/NOTICE TO CONTRACTOR.” This is actually common as it kills two birds with one stone in the event the lienor is unsure and wants to preserve both lien and bond rights.

However, unlike perfecting a lien claim, potential lienors looking to recover under a payment bond for a private project must serve a Notice of Nonpayment to the contractor and payment bond surety within 90 days of finial furnishing at the project. (As it relates primarily to subcontractors, “The failure of a lienor to receive retainage sums not in excess of 10 percent of the value of labor, services, or materials furnished by the lienor is not considered a nonpayment requiring the service of the notice provided under this paragraph. Fla. Stat. s. 713.23(1)(d).) This Notice of Nonpayment even needs to be served by the subcontractor/supplier in privity of contract with the general contractor (even though the preliminary Notice to Contractor does not need to be served by the subcontractor/supplier in privity of contract with the general contractor). Final furnishing refers to the last date the lienor furnished labor, services or materials (excluding warranty or punchlist work). With respect to companies that furnish rental equipment, this final furnishing date is measured from the last date the rental equipment was on the project site and available for use.

Understanding the specific preliminary notices that need to be served and the timing of these notices is important to ensure that a subcontractor, supplier, etc. is properly preserving their lien or bond rights.

D. Preliminary Notice Companies

There are numerous companies that cost effectively assist subcontractors and suppliers with serving preliminary notices as a matter of course based on the information provided by the subcontractor and supplier. This is important to ensure the company preserves lien and bond rights!

One such emerging company that can assist with the generation, preparation and service of preliminary notices is FileMyPrelim (www.filemyprelim.com) with its cool, innovative web-based platform called PrelimTracker (www.prelimtracker.com). FileMyPrelim and PrelimTracker have developed a preliminary notice service and tracking platform that adapts to a construction industry that is evolving with the generation and transmission of electronic documentation. What is really cool is that by using FileMyPrelim, the lienor’s data is stored and tracked with PrelimTracker. Because these preliminary notices (whether it is a Notice to Owner, Notice to Contractor, etc.) are linked to PrelimTracker, the general contractor, the owner, and even the owner’s construction lender can universally track those entities that served the preliminary notices jointly on this web-based platform. By doing this, the general contractor, owner, and lender are all on the same page to ensure that those entities that preserved lien rights are properly transmitting releases of lien in consideration of progress payments (so that their lien rights are released through a specified date) and that a final release of lien is given in consideration of final payment to that lienor. In fact, PrelimTracker can generate the lienor’s release of lien based on the information provided by the lienor and transmit it electronically with a secure electronic signature. This allows all of the lienor’s releases to be stored and tracked in a platform accessible to the project team. Even if a lien could not be recorded against the owner’s project because the general contractor furnished a payment bond, PrelimTracker could track the preliminary notices from lienors served through FileMyPrelim preserving payment bond rights to ensure the general contractor is obtaining releases of lien from those entities. (Keep in mind, PrelimTracker provides value as it pulls data compiled in FileMyPrelim to report critical lien related documents.) Check out the website links to learn more about this emerging technology that can serve as a beneficial tool to the entire project team.

E. Preliminary Notice Forms

Preliminary Notice for Liens

WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.

UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.

TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.

NOTICE TO OWNER

To (Owner’s name and address)

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

(General description of services or materials) for the improvement of the real property identified as (property description) under an order given by____________.

Florida law prescribes the serving of this notice and restricts your right to make payments under your contract in accordance with Section 713.06, Florida Statutes.

IMPORTANT INFORMATION FOR

YOUR PROTECTION

Under Florida’s laws, those who work on your property or provide materials and are not paid have a right to enforce their claim for payment against your property. This claim is known as a construction lien.

If your contractor fails to pay subcontractors or material suppliers or neglects to make other legally required payments, the people who are owed money may look to your property for payment, EVEN IF YOU HAVE PAID YOUR CONTRACTOR IN FULL.

PROTECT YOURSELF:

–RECOGNIZE that this Notice to Owner may result in a lien against your property unless all those supplying a Notice to Owner have been paid.

–LEARN more about the Construction Lien Law, Chapter 713, Part I, Florida Statutes, and the meaning of this notice by contacting an attorney or the Florida Department of Business and Professional Regulation.

(Lienor’s Signature)

(Lienor’s Name)

(Lienor’s Address)

Copies to: (Those persons listed in Section 713.06(2)(a) and (b), Florida Statutes)

Preliminary Notices for Payment Bonds

NOTICE TO CONTRACTOR

To (name and address of contractor)

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

(general description of services or materials) for the improvement of the real property identified as (property description) under an order given by (lienor’s customer) .

This notice is to inform you that the undersigned intends to look to the contractor’s bond to secure payment for the furnishing of materials or services for the improvement of the real property.

(name of lienor)

(signature of lienor or lienor’s representative)

(date)

(lienor’s address)

NOTICE OF NONPAYMENT

To (name of contractor and address)

(name of surety and address)

The undersigned notifies you that he or she has furnished (describe labor, services, or materials) for the improvement of the real property identified as (property description) The amount now due and unpaid is $___.

(signature and address of lienor)

SUPPLIER / SUB-SUBCONTRACTOR NOTICE REQUIREMENTS UNDER THE MILLER ACT

Posted on March 23, 2014March 23, 2014 by Edward Garber

Sub-subcontractors and suppliers to subcontractors working on federal projects NEED to know what they need to do to preserve Miller Act payment bond rights. Prime contractors need to know too so that they know what defenses to raise against the unwary sub-subcontractor/supplier that asserts a claim against their Miller Act payment bond. The Miller Act requires:

“A person having a direct contractual relationship with a subcontractor but no contractual relationship, express or implied, with the [prime] contractor furnishing the payment bond may bring a civil action on the payment bond on giving written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made. The action must state with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. The notice shall be served–
(A) by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor’s residence; or
(B) in any manner in which the United States marshal of the district in which the public improvement is situated by law may serve summons.
40 U.S.C. s. 3133 (b)(2)

In U.S. f/u/b/o Columbus Fire & Safety Equipment Co., Inc. v. Anderson Electric Co., Inc., 2014 WL 931262 (M.D. GA 2014), a supplier to a subcontractor was not paid on a federal project. The supplier notified the Miller Act surety and prime contractor of the non-payment. However, the supplier appeared to only notify the surety of the specific amount it claimed it was due which the surety communicated to the prime contractor. When the supplier remained unpaid, it instituted a Miller Act lawsuit. The surety and prime contractor moved for summary judgment arguing that the supplier failed to provide proper notice to the prime contractor pursuant to the Miller Act. Specifically, the surety and prime contractor argued that the supplier failed to notify the prime contractor of the amount the supplier claimed to be due as required by the Miller Act.

Under the Miller Act, “If a subcontractor fails to pay a supplier of materials on such a project, that supplier can sue on the bond by giving written notice to the general contractor within ninety days of last supplying the material for which the claim is made.” Anderson Electric, supra, at *2 citing 40 USC s. 31333(b)(2).

The question in this case was whether the prime contractor was on sufficient notice of the supplier’s claim since it was not provided with direct notice from the supplier of the amount the supplier claimed it was owed. The Middle District of Georgia noted that courts typically allow flexibility concerning the method notice is given. However, the notice must be sufficiently specific to place the prime contractor on notice of the claim that the supplier is asserting. “The purpose of the notice requirement of the Miller Act is to alert a general contractor that payment will be expected directly from him, rather than from the subcontractor with whom the materialman [supplier] dealt directly.” Anderson Electric, supra, at *3 quoting United States ex rel. Jinks Lumber Co. v. Fed. Ins. Co., 452 F.2d 485, 487 (5th Cir.1971). Regarding the notice requirement, the Middle District of Georgia stated:

“That notice does not, however, have to be entirely in one writing for it to comply with the Miller Act. Written notice may be considered in conjunction with other writings or even oral statements to determine whether the general contractor was adequately informed, expressly or impliedly, that the supplier is looking to the general contractor for payment so that it plainly appears that the nature and state of the indebtedness was brought home to the general contractor.” Anderson Electric, supra, at *3 (internal quotations omitted and citation omitted).

Here, there was no evidence that the supplier notified the prime contractor of the amount it claimed it was owed. However, there was evidence that the supplier notified the surety of the amount it claimed it was due and the surety notified the prime contractor of this amount within the 90-day deadline. For this reason, the Middle District of Georgia denied the summary judgment and found that “communication between the…claimant, the contractor’s surety, and the general contractor can be considered by the jury in its determination of whether the general contractor received sufficient notice, that the supplier is looking to the general contractor for payment of some specific amount of a specific subcontractor’s indebtedness.” Anderson Electric, supra, at *4.

This opinion illustrates the importance of a supplier or sub-subcontractor giving the prime contractor on a federal project proper notice of its claim for non-payment within 90 days of their final furnishing date. Not doing so can be fatal to their Miller Act claim. A prime contractor that is aware of this will raise this as a defense and move for summary judgment on this point. In this case, it appeared that the surety assisted the supplier by notifying the prime contractor of the supplier’s claimed amount within the supplier’s 90 day deadline. Also, due to the flexibility of the notice requirements, the supplier/sub-subcontractor may have arguments to survive a summary judgment, especially if it notified the surety and the surety notified its principal-prime contractor within 90 days of the supplier/sub-subcontractor’s final furnishing date. But, it should not even get to this point as the notice requirements of the Miller Act should absolutely be met to ensure Miller Act payment bond rights are timely preserved.