Do You Furnish Work on Public Projects? Knowing the Changes to the Public Project Bond Law Is Essential To Getting Paid.
By: Ian T. Kravitz, Esquire
If you furnish labor, services, or materials for the improvement of a public project, significant changes to the Florida public project bond law, section 255.05 Florida Statutes, have just gone into effect. In order to increase your chances of being paid, you need to understand these changes and the potential effects on you.
Many times, when a contractor remains unpaid on a public project, the scramble begins to try and discover whether a bond protecting their payment exists, and if so, how to obtain a copy. Too often, this effort is made after payment is withheld, and when time is short, or expired, to effectively bring a claim against the bond. The surety often plays a shell game, passing the claimant from person to person in the never ending search for the bond, and the governing agency often is ineffective in providing assistance. Recent changes to section 255.05 Florida Statutes should help.
As of October 1, 2012, section 255.05(1)(b) Florida Statutes was inserted to require that
[b]efore commencing the work or before recommencing the work after a default or abandonment, the contractor shall provide to the public entity a certified copy of the recorded bond. Notwithstanding the terms of the contract or any other law governing prompt payment for construction services, the public entity may not make a payment to the contractor until the contractor has complied with this paragraph.
Simply put, for the first time, this statutory mandate places a specific obligation on the governing agency to ensure that a proper payment bond has been furnished to protect those furnishing labor, services or material for the improvement of the project. Also for the first time, the prime contractor now has an incentive to ensure compliance as this new condition precedent to the contractor being able to obtain payment has been enacted.
This change to the public project bond laws is sure to make the search for an applicable payment bond easier on claimants. As does the insertion of section 255.05(1)(a)(3), which provides that the bond must state on its first page, the bond number assigned to that bond by the surety. As a result of these two changes, claimants are more likely to be capable of obtaining a copy of a payment bond in a timely fashion by the governing agency, and will be less likely to get the run-around by the surety claiming they are unaware of whether such a bond exists.
The next major change to the public project bond law is the modification of section 255.05(1)(e) to provide that any language within a payment 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 [Chapter 255.05 Florida Statutes] is unenforceable." While Chapter 255.05 has long set forth the conditions on a claimant in making a claim against a public project payment bond, sureties all to often attempt to insert additional requirements of claimants in making claims, or seek to shorten the time provided by statute for such claims to be made. This always adds to the issues raised in any eventual litigation, and inevitably results in additional unnecessary litigation costs.
As a result of this section, a surety can no longer attempt to place additional obligations upon claimants in making a payment bond claim, and can no longer attempt to shorten the time within which such a claim may be brought. Claimants can now be assured of more consistency in the public project bond procedures, and will have more certainty in what obligations may be imposed on them within the payment bond language. Review of all payment bonds by experienced construction counsel is still of course recommend.
A more subtle change found in the public project bond law, but significant nonetheless, involves the contesting of a payment bond claim. When a claimant has ceased furnishing labor, services or materials for a public project, the prime contractor has previously had the ability to contest the claimant's right to bring a payment bond claim. This serves to shorten the time within which such a claim could be brought from one year down to sixty days. This has not changed.
The procedure by which a prime contractor could reduce such period from one year to sixty days has changed however. The prior statutory procedure simply required the recording in the clerk's office of a statutory Notice of Contest of Claim Against Payment Bond. The statute then required the clerk of court to mail the recorded notice to the claimant. Now however, the prime contractor bears additional responsibility. Specifically, the prime contractor, or their attorney, must also serve a copy of the Notice of Contest on the claimant, and must certify such service on the Notice that is recorded. Failure to comply with this new obligation will result in the Notice of Contest being treated as a legal nullity.
The next notable change to Chapter 255.05 is the new limitation on the service of a claimant's Notice of Nonpayment. The former statute, consistent with the private project bond statute of section 713.23 Florida Statutes, simply required service of a Notice of Nonpayment within ninety days of a claimant's last date of furnishing labor, services or materials for the improvement of the project. The amended statute now states specifically that such preliminary notice may not be served within the first forty-five days of a claimants furnishing of improvements to the public project. This requires special attention by those who furnish improvements on public projects. A claimant, who serves such a notice prematurely, may find themselves without any remedy against the payment bond for failure to comply with this statutory mandate. On non-public projects governed by Chapter 713 Florida Statutes, you can serve this Notice of Non-Payment at any time prior to the expiration of ninety days from your last date of furnishing. On a public project, however, contractors must be sure to modify such procedures so that they serve such Notice of Non-payment only after they have been furnishing improvements for a period of forty-five days. A contractor who confuses these obligations and serves such Notice too early, will see that sometimes the early bird does not get the worm. Your Construction Law FirmTM can assist you in implementing procedures to ensure that this does not happen to you.
The final significant change to the public bond laws was the insertion of section 255.05(11). This new statutory subsection seeks to ensure timely payments to the prime contractor on a public project without forcing the contractor to furnish releases from all potential claimants as a condition precedent to such payments. While at first blush this would appear to allow a prime contractor to obtain payments from the governing agency without being required to ensure such payments are passed to claimants, this is not the case. In addition to the prompt payment laws requiring such prompt payments to claimants, (such as Chapter 218 Florida Statutes) this provision also transfers some of the liability otherwise on the governing agency onto the surety, to ensure such prompt payments to claimants.
Specifically, this provision makes clear that the governing agency may only make such payments without being furnished releases from potential claimants, if the surety consents to such payments being made. In the past, when payments were made by a governing agency to a contractor, such payments would decrease the potential liability of the surety on the payment bond dollar for dollar. Now however, the liability to determine whether payments should in fact be made to the contractor has shifted more clearly to the surety.
The surety will no longer be able to limit its liability for payments made to the contractor unless the surety has ensured that proper claimants have been provided for. This is a significant change to the public project bond law, and will likely cause prime contractors to be more prudent in making prompt payments to claimants, as more skeptical sureties withhold consent for payments to the prime contractor until the surety is convinced that claimants are taken care of.
These changes to the public project bond law are significant, and require contractors to ensure that their internal procedures are modified to account for these new obligations and conditions. Failure to strictly comply with such provisions could prove costly. Your Construction Law FirmTM is here to assist you from modifying and carrying out those procedures, to negotiation of unpaid claims, to litigation and alternative dispute resolution where necessary.