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!

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: 4 ELEMENTS OF MILLER ACT PAYMENT BOND CLAIM

Posted on August 5, 2019August 8, 2019 by Edward Garber

A subcontractor on a federal construction project must prove the following four elements in a Miller Act payment bond claim:

1. The subcontractor supplied labor and/or material per its subcontract;

2. The subcontractor is unpaid for the labor and/or material supplied per its subcontract;

3. The subcontractor had a good faith belief that the labor and/or material supplied was for purposes of the project (and the prime contractor’s contractual scope of work for the project); and

4. The subcontractor satisfied jurisdictional requirements in bringing the Miller Act payment bond lawsuit.

Notably, the subcontractor’s performance will be determined in reference to the subcontract. This includes reference to the scope of work and the payment terms contained in the subcontract.

“LABOR” THAT CAN BE PURSUED AGAINST A MILLER ACT PAYMENT BOND

Posted on June 23, 2019April 24, 2020 by Edward Garber

It is important to ensure you consult with counsel when it comes to Miller Act payment bond rights and defenses. One consideration is the type of “labor” that can be pursued against a Miller Act payment bond. The opinion in Prime Mechanical Service, Inc. v. Federal Solutions Groups, Inc., 2018 WL 6199930 (N.D.Cal. 2018) contains a relevant and important discussion on this topic.

In this case, a prime contractor on a federal construction project hired a subcontractor to prepare and install a new HVAC system. The subcontractor was not paid and filed a lawsuit against the prime contractor’s Miller Act payment bond. The prime contractor moved to dismiss the claim, with one argument being that design work the subcontractor was suing for was NOT “labor” that can be pursued against a Miller Act payment bond. The Court agreed:

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” see United States ex rel. Shannon v. Fed. Ins. Co., 251 Fed. Appx. 269, 272 (5th Cir. 2007), or “physical toil,” see United States ex rel. Barber-Colman Co. v. United States Fid. & Guar. Co., No. 93-1665, 1994 WL 108502, at *3 (4th Cir. 1994). Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, see United States ex rel. Naberhaus-Burke, Inc. v. Butt & Head, Inc., 535 F. Supp. 1155, 1158 (S.D. Ohio 1982), some courts have found “certain professional supervisory work is covered by the Miller Act, namely, skilled professional work which involves actual superintending, supervision, or inspection at the job site” see United States ex rel. Olson v. W.H. Cates Constr. Co., 972 F.2d 987, 990-92 (8th Cir. 1992) (internal quotation and citation omitted) (citing, as examples, “architect … who actually superintends the work as it is being done” and “project manager … [who] did some physical labor at the job site” (internal quotation and citation omitted)).

Here, plaintiff alleges it “attended 4 or 5 on-site field meetings … to determine the location and layout of the new equipment, … performed on-site field coordination with the existing equipment, … took on-site field measurements for fabrication of duct work and support hangers, … scheduled the start date and while on-site planned site access and crane locations, prepared product and equipment submittals, and obtained security passes.” (See FAC ¶ 12.) The above-listed services are, however, “clerical or administrative tasks which, even if performed at the job site, do not involve the physical toil or manual work necessary to bring them within the scope of the Miller Act.” See United States ex rel. Constructors, Inc. v. Gulf. Ins. Co., 313 F. Supp. 2d 593, 597 (E.D. Va. 2004) (holding subcontractor did not furnish “ ‘labor’ within the contemplation of the Miller Act” where subcontractor’s duties entailed paying invoices, reviewing subcontractor and vendor proposals, supervising the hiring of site personnel, and providing site coordination services). Although taking “on-site field measurements” (see FAC ¶ 12) may have involved some minor physical activity, it does not amount to the physical “toil” required by the Miller Act.

Prime Mechanical Service, 2018 WL 6199930, at *3.

PROVIDING “LABOR” UNDER THE MILLER ACT

Posted on December 9, 2018April 24, 2020 by Edward Garber

A recent opinion out of the Northern District of California discusses the “labor” required to support a Miller Act payment bond claim on a federal construction project. It is a good case that discusses the type of labor required to support a Miller Act payment bond claim.

In Prime Mechanical Service, Inc. v. Federal Solutions Group, Inc., 2018 WL 619930 (N.D.Cal. 2018), a prime contractor was awarded a contract to design and install a new HVAC system. The prime contractor subcontracted the work to a mechanical contractor. The mechanical contractor with its sub-designer prepared and submitted a new HVAC design to the prime contractor and provided 4-5 onsite services to determine the location and layout for the new HVAC equipment, perform field measurements, obtain security passes, and plan site access and crane locations. The mechanical contractor submitted an invoice to the prime contractor and the invoice remained unpaid for more than 90 days, which the prime contractor refused to pay. The mechanical contractor than filed a Miller Act payment bond lawsuit.

The prime contractor and surety argued that the mechanical contractor had no valid Miller Act payment bond claim because it was seeking professional services and not the labor covered by the Miller Act. The trial court agreed.

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” or “physical toil.” Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, some courts have found “certain professional supervisory work is covered by the Miller Act, namely, skilled professional work which involves actual superintending, supervision, or inspection at the job site.”

Prime Mechanical Service, Inc., 2018 WL at *3 (internal citations omitted).

The mechanical contractor attempted to argue that it was onsite and the onsite services it performed should constitute “labor.” However, the onsite services the mechanical contractor identified were clerical or administrative-type services which did NOT involve “the physical toil or manual work necessary to bring them within the scope of the Miller Act.” Prime Contractor Mechanical Service, Inc., 2018 WL at *3.

In this case, the mechanical contractor gave it a worthy go to support a Miller Act payment bond claim. But, because the services it performed did not rise up the type of “labor” covered by the Miller Act, it was out of luck. Had these services been coupled with actual manual labor at the site connected to the installation of the new HVAC system, the result would have been much different since the mechanical contractor would have performed “labor” covered by the Miller Act.

SOMETIMES, BEING TOO CUTE WITH PLEADING ALLEGATIONS IS UNNECESSARY

Posted on June 2, 2018June 2, 2018 by Edward Garber

There are times where being too darn cute with your pleading allegations is unnecessary and does not work. But, the point is really that the cuteness is unnecessary.

In a Miller Act payment bond dispute in Boneso Brothers Construction, Inc. v. Sauer, Inc., 2018 WL 2387833 (N.D.Cal. 2018), a claimant asserted claims against a Miller Act payment bond surety for breach of the payment bond, breach of a subcontract, open account, and account stated. The question is why would the claimant sue the payment bond surety for breach of subcontract (when the subcontract was not with the surety), and open account and account stated. I have no clue, other than such claims appeared quite unnecessary when the claimant asserted an action on the Miller Act payment bond (which is what the surety is liable under — actions under the statutory payment bond). Such claims were dismissed. And, they should have been.

A claimant cannot navigate around an action under a Miller Act payment bond by suing the surety for breach of an underlying subcontract. Such a claim would obviate any preconditions to suing the surety under the bond and extend the surety’s exposure.

In Florida, and elsewhere, an account stated and open account are distinct causes of action.

An account stated is a claim when there is an “agreement between persons who have had previous transactions, fixing the amount due in respect of such transactions, and promising payment.” Farley v. Chase Bank, U.S.A., N.A., 37 So.3d 936, 937 (Fla. 4th DCA 2010) (quotation and citation omitted). An “account stated requires an express or implied agreement between the parties that a specified balance is correct and due and an express or implied promise to pay the balance.” Id.

An open account “is an unsettled debt arising from items of work and labor, with the expectation of further transactions subject to future settlements and adjustments.” Id. (quotation and citation omitted). In an action on an open account, the claimant must actually attach a copy of the itemized account, unlike an account stated action. Id.

The reality is none of these other claims would really apply to a Miller Act payment bond surety. Moreover, the surety naturally was being indemnified by its payment bond-principal, so it is not like the surety put itself in a position where it affirmatively acknowledged the so-called “debt” the subcontractor claimed was owed. The cuteness in trying to “throw the book” at the surety was not necessary, specifically when the subcontractor had an action on the Miller Act payment bond!

REPAIRING ONE’S OWN WORK AND THE ONE YEAR STATUTE OF LIMITATIONS TO SUE A MILLER ACT PAYMENT BOND

Posted on April 9, 2018April 9, 2018 by Edward Garber

When it comes to Miller Act payment bond claims, repairing one’s own work does NOT extend the one year statute of limitations to file suit on a Miler Act payment bond. Belonger Corp., Inc. v. BW Contracting Services, Inc., 2018 WL 704379, *3 (E.D. Wisconsin 2018) (“The courts that have considered this question tend to agree that, once a subcontractor completes its work under the subcontract, repairs or corrections to that work do not fall within the meaning of ‘labor’ or ‘materials’ and, as such, do not extend the Miller Act’s one-year statute of limitations.”).

Well, what if the subcontractor was repairing its own work due to an issue caused by another subcontractor?

This was the situation in Belonger Corp. where a plumber was asked to unclog a plumbing line that had concrete in the line (caused by another subcontractor) months after the plumber had completed its contractual scope of work. Before the subcontractor did this work, it smartly sent an e-mail stating that it needs an e-mail acknowledgement that this additional work is authorized and a change order will be forthcoming. The contractor responded, “Yes, please proceed with repair work on a T&M [time and materials] basis….” Sure enough, the subcontractor unclogged the line and a change order was never issued.

The subcontractor filed a Miller Act payment bond claim for unpaid contract work plus change order work, such as unclogging the line. The subcontractor based its last day for purposes of the statute of limitations on the work associated with unclogging the line and not on the day it completed its contractual scope of work. If it was determined that the subcontractor’s last day / final furnishing date was when it fully completed its contractual scope of work, its Miller Act payment bond lawsuit would be untimely / barred by the one year statute of limitations to sue on a Miller Act payment bond.

The issue was whether the subcontractor’s remedial work to its own plumbing line extended its final furnishing date. The trial court found this to be a question of fact because this arguably was change order work that amended the subcontract to include this additional work. The fact that the subcontractor sent an e-mail before doing this work and the fact that the contractor responded helped the subcontractor create a question of fact that its payment bond claim was not untimely because unclogging its own plumbing line due to an issue caused by another trade subcontractor was additional subcontractual work that extended its final furnishing date.

If you are in this situation, the best bet is not to bank on this type of argument. File your Miller Act payment bond claim within one-year of finishing your contractual work. With that said, if you don’t, the argument raised by the subcontractor here that repairing its own work due to an issue caused by another subcontractor was additional work that modified the terms of the subcontract and extended its final furnishing date is a creative argument helped by the e-mail this subcontractor smartly sent.

For more information on the Miller Act, check out this ebook.

QUICK NOTE: NOTICE OF CONTEST OF CLAIM AGAINST PAYMENT BOND

Posted on January 21, 2018January 21, 2018 by Edward Garber

On private jobs where the general contractor has an unconditional payment bond, subcontractors, sub-subcontractors and suppliers need to serve a notice of nonpayment to preserve payment bond rights.

Just like an owner can record a Notice of Contest of Lien to shorten a lienor’s statute of limitations to foreclose the lien to 60 days, a general contractor can record a Notice of Contest of Claim Against Payment Bond. See Fla. Stat. s. 713.23(e). When a contractor records a Notice of Contest of Claim Against Payment Bond, the contractor is contesting the notice of nonpayment and shortening the claimant’s period to sue on the payment bond to 60 days from the date of service of the notice.

This tool is used less frequently than the Notice of Contest of Lien; however, it can be a very successful tool for a contractor to use when receiving a notice of nonpayment.

SUBCONTRACTOR’S MILLER ACT PAYMENT BOND CLAIM

Posted on August 31, 2017August 31, 2017 by Edward Garber

Since I wrote my ebook on the application of federal Miller Act payment bonds, I have not discussed a case applying the Miller Act. Until now!

Below is a case that reinforces two important points applicable to Miller Act payment bond claims. First, the case reinforces what a claimant needs to prove to establish a Miller Act payment bond claim. Very important. Second, the case reinforces that a subcontractor is going to be governed by its subcontract. This means that those provisions regarding payment and scope of work are very important. Not that you did not already know this, but ignoring contractual requirements will not fly.

In U.S.A. f/u/b/o Netplanner Systems, Inc. v. GSC Construction, Inc., 2017 WL 3594261 (E.D.N.C. 2017), a prime contractor hired a subcontractor to run cabling and wiring at Fort Bragg. The subcontractor claimed it was owed a balance and filed a lawsuit against the general contractor the Miller Act payment bond.

“A plaintiff must prove four elements to collect under the Miller Act: (1) labor or materials were supplied for work in the contract; (2) the supplier of that labor or materials is unpaid; (3) the supplier had a good faith belief that the labor or materials were for the specified work; and (4) jurisdictional requisites are met.” U.S.A. f/u/b/o Netplanner Systems, Inc., supra, at *5.

The prime contractor claimed that the subcontractor was not owed any balance since it violated terms of the subcontract regarding its timely performance. Per the subcontract, the subcontractor agreed that it would perform and complete its work in accordance with the schedule approved by the federal government and that final payment will be made when the subcontractor fully performed in accordance with the requirements of the Contract Documents.

In this case, the trial court determined there were questions of fact involving whether the subcontractor complied with the terms of the subcontract. But, in doing so, the trial court confirmed, again, what we already know — that the subcontractor’s performance will be determined in reference to its underlying subcontract.

“‘Whether a subcontractor has been paid in full for providing labor and materials must be determined by reference to the underlying subcontract as it relates to the scope of the work and the payment terms.’” U.S.A. f/u/b/o Netplanner Systems, Inc., supra, at *5 quoting U.S. ex rel. Acoustical Concepts, Inc. v. Travelers Cas. and Sur. Co. of Am., 635 F.Supp.2d 434, 438 (E.D. Va. 2009).

VENUE FOR SUING PUBLIC PAYMENT BOND

Posted on June 9, 2017June 9, 2017 by Edward Garber

Public payment bonds (excluding FDOT payment bonds) are governed under Florida statute s. 255.05. As it pertains to venue—the location to sue a public payment bond–the statute provides in relevant portion:

(5) In addition to the provisions of chapter 47, any action authorized under this section may be brought in the county in which the public building or public work is being construction or repaired.

***

(1)(e) Any provision in a payment bond…which restricts venue of any proceeding relating to such bond…is unenforceable.

Now, what happens if a subcontractor sues only a payment bond but its subcontract with the general contractor contains a mandatory venue provision? For example, what if the general contractor is located in Lee County and the subcontract contains a venue provision for Lee County, the project is located in Collier County, the subcontractor is located in Miami-Dade County, and the surety issues bonds in Miami-Dade County? Does venue have to be in Lee County per the mandatory venue provision?

According to the decision in Travelers Casualty and Insurance Co. of America v. Community Asphalt Corp., 42 Fla. L. Weekly D1318a (Fla. 3d DCA 2017), a claimant can sue a public payment bond anywhere where venue is permitted irrespective of a mandatory venue provision in a subcontract. In this case, the project was in Collier County and the subcontract contained a mandatory venue provision for Lee County. However, the subcontractor sued the public payment bond in Miami-Dade County. The Third District held that the subcontract’s venue provision could not be read into the bond because it would be unenforceable since Florida Statute s. 255.05 renders such language that restricts venue unenforceable.

The Third District, however, did importantly note that this ruling may likely have been different if the subcontractor also sued the general contractor in the lawsuit. Because the subcontractor only sued the public payment bond, the venue provision in the subcontract did not apply.

Strategically, there are reasons why a payment bond claimant (e.g., subcontractor) does not want to sue the general contractor. One such reason is venue, as in the instant case. The subcontractor did not want to sue in Lee County and had a strong argument to sue the public payment bond in Miami-Dade County, a more preferable and convenient venue to it, and was able to do so notwithstanding the venue provision in the subcontract.

PRESERVING YOUR RIGHTS TO SECURE PAYMENT ON CONSTRUCTION PROJECTS (WITH EXAMPLES)

Posted on March 18, 2017March 18, 2017 by Edward Garber

All participants across the construction industry should understand what efforts they should take to maximize and collateralize payment. No one wants to work for free and, certainly, no one in the construction industry wants to work without ensuring there is some mechanism to recover payment in the event they remain unpaid. Being proactive and knowledgeable can go a long way when it comes to recovering your money.

Your Contract – It starts with the contract. You should understand those risks that are allocated to you and those that are allocated to another party. And, you should understand the contractual mechanism to resolve claims and disputes and whether your contract has a prevailing party attorney’s fees provision. In addition to contractual rights, there are tools for you to maximize your collection efforts.

Construction Liens – Construction liens apply to private projects, not public projects. This is a very valuable tool as they allow you to collateralize nonpayment against real property. It is really important you know what you need to do to preserve your construction lien rights. Construction liens are a creature of statute and the failure to properly preserve and perfect your construction lien rights can be fatal to your lien claim.

Example 1. I am a general contractor on a private condominium project. I am owed $1,000,000 from the developer. As the general contractor, I can record a construction lien within 90 days from my final furnishing on the project exclusive of punchlist and warranty work. (This is good for one year from recording unless the developer takes steps to shorten the limitations period to foreclose the lien.) I serve a copy of the lien on the developer (and others that may be listed in the Notice of Commencement) within 15 days of the recording of the lien. At least 5 days before filing suit to foreclose on the lien, I need to serve a Contractor’s Final Payment Affidavit on the developer.

***

Example 2. I am a subcontractor on a private condominium project. I am owed $1,000,000 from the general contractor. Since I am not in privity with the owner/developer, I need to serve a Notice to Owner within 45 days of my initial furnishing on the owner and general contractor (and others listed in the Notice of Commencement). I need to record my construction lien within 90 days from my final furnishing and furnish a copy on the owner within 15 days from the recording of the lien. Also, since I am not in privity with the owner/developer, I do not need to serve a Contractor’s Final Payment Affidavit. I need to sue on the lien within 1 year from the recording of the lien (unless efforts are taken to shorten the limitation period).

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Payment Bonds (Private Projects) – There can be statutory payment bonds on private projects. The Notice of Commencement will attach a copy of the payment bond, if one exists. If one is not referenced and attached, then that means the claimant has lien rights. It is really important you know what you need to do to preserve your payment bond rights on private projects – they are not necessarily the same as preserving payment bond rights on public projects. Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

Example 3. I am a subcontractor on a private condominium project. I am owed $1,000,000 from the general contractor. I know from the Notice of Commencement that the general contractor furnished an unconditional payment bond. Since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor. But, within 90 days of final furnishing, I need to serve the general contractor and payment bond surety with a Notice of Non-Payment. I then need to sue on the payment bond within 1 year from my final furnishing.

Payment Bonds (Public Projects)—There are statutory payment bonds on Florida public projects and Federal projects. There are different procedures to preserve rights depending on the type of public project and it is important to know what steps you need to take to preserve your rights. Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

Example 4. I am a subcontractor on a Florida school public project. I am owed $1,000,000 from the general contractor. I know that since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor. I also know since I am in privity with the general contractor, I do not need to serve a Notice of Non-Payment on the general contractor and surety. (Note, this is different than if this were a private project). I need to sue on the payment bond within 1 year from my final furnishing.

***

Example 5. I am a supplier to a subcontractor on a Florida school public project. I am owed $1,000,000 from the subcontractor. Since I am not in privity with the general contractor, I need to serve a Notice of Intent to look to the Bond within 45 days of my initial furnishing. Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment on the general contractor and surety within 90 days of my final furnishing. I need to sue on the payment bond within 1 year from my final furnishing.

***

Example 6. I am a sub-subcontractor on an FDOT public transportation project. I am owed $1,000,000 from the subcontractor. Since I am not in privity of contract with the general contractor, I need to serve a Notice of Intent to look to the Bond on the general contractor within 90 days of my initial furnishing. (Note, this is different than other public projects.) Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment within 90 days of my final furnishing on the general contractor and surety. I then need to sue on the payment bond within 365 days of the final acceptance of the contract and work by the FDOT. (Note, this is different than other public projects.)

***

Example 7. I am a subcontractor to a prime contractor on a federal project. I am owed $1,000,000 from the prime contractor. Since this is a federal project, there is no preliminary notice requirement. (Note, this is different than other public projects.) Since I am in privity with the general contractor, I do not need to serve a Notice of Non-payment on the prime contractor within 90 days of my final furnishing. I need to sue on the payment bond within 1 year from my final furnishing.

***

Example 8. I am a supplier to a subcontractor on a federal project. I am owed $1,000,000 from the subcontractor. Since this is a federal project, there is no preliminary notice requirement. Also, since I am not in privity with the prime contractor, I need to serve a Notice of Non-Payment only on the prime contractor within 90 days of my final furnishing. (Note, this is different than other public projects.) I need to sue on the payment bond within 1 year from my final furnishing.

As reflected from the examples, preserving and perfecting construction lien and payment bond rights is nuanced and depends on the type of project. Know your rights. Be proactive when it comes to preserving and perfecting your rights. And, make sure to utilize the services of a construction attorney that can help you maximize your collection efforts correctly.