Changes are Coming – What You Need To Know To Meet Florida’s New Private Project Payment Bond Claim Requirements

All Florida construction industry participants need to be aware of the significant new changes to the payment bond claim requirements on private projects under section 713.23, Florida Statutes, made by the 2019 Florida Legislature in House Bill 1247.[1]  These changes become effective on October 1, 2019, and understanding the new requirements is critical for subcontractors, suppliers and laborers to ensure they comply and do not lose their right to payment from the payment bond surety insurance, and for owners, contractors and sureties to assess the validity of such claims.

Florida construction contractors, subcontractors, suppliers and laborers should understand how payment bond claim requirements are changing to impact surety insurance on their projects.

What Is A Payment Bond And Surety Insurance?

A payment bond is a three-party agreement between a property owner, general contractor, and surety by which the surety guarantees that the contractor will pay subcontractors, laborers, and material suppliers for their work on a construction project.  When a payment bond is in place on a project, it serves as the security for payment in lieu of the typical right subcontractors, laborers and suppliers would have to file a construction lien against the project.  Instead, they are required to bring their claims against the payment bond, and any claim of lien filed against the property will be transferred to the bond.[2]

For this reason, it is critical for subcontractors, laborers and suppliers to know and comply with the payment bond claim requirements on bonded projects to ensure their right to payment under the bond should they not receive payment for their work.   In fact, a failure to comply with the statutory requirements may result in a loss of the right to recover payment from the bond at all.

What Are The Key Changes For Payment Bond Claims?

All of the specific changes to section 713.23, Florida Statutes, made by House Bill 1247, can be viewed at the following link: H.R. 1247, 26th Leg., C.S.C.S. (Fla. 2019).  The key changes primarily relate to the statutory form of the notice of nonpayment that must be served on the contractor and surety, the consequences of intentionally or recklessly exaggerating the amount or nature of the claim in the notice of nonpayment, and the timing of the notice relative to claims related to rental equipment.

1. Notice Of Nonpayment

Under current law, in order to perfect a claim against a payment bond, all potential claimants, regardless of whether they are in contractual privity with the contractor,[3] must serve a written notice of nonpayment to the contractor and the surety no later than 90 days after the claimant’s final furnishing of labor, services, or materials to the project.[4]  The failure to timely serve the notice of nonpayment precludes an action to recover from the surety insurance on the payment bond.[5]

House Bill 1247 made major changes to the requirements of what must be included in the notice of nonpayment.  First, the new statutory form of the notice of nonpayment included in the statute, which the new law mandates must be “substantially” followed, includes the following items of required information, with multiple new additional items that were not previously required indicated in bold below:

  • The name of the contractor and the contractor’s address;
  • The name of the surety and the surety’s address;
  • The nature of the labor or services performed;
  • The nature of labor or services to be performed, if known;
  • The materials furnished;
  • The materials to be furnished, if known;
  • The amount paid on the account;
  • The amount due, and how much of the amount due is for retainage, if any;
  • The amount to become due, if known; and
  • The notice provider’s signature and address.

Second, all of the statements contained in the notice of nonpayment must now be made under oath, and include the following declaration: “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.”  If the notice fails to comply with these requirements, there is a risk the claimant could lose or impair its rights under the payment bond.

2. Fraudulent Notice Of Nonpayment

Next, House Bill 1247 establishes an entirely new concept of a fraudulent notice of nonpayment.  Similar to the concept of a fraudulent construction lien under section 713.31, Florida Statutes, effective October 1, 2019, if a claimant serves a fraudulent notice of nonpayment, the claimant will lose all rights under the payment bond.  A notice of nonpayment will be considered fraudulent if the claimant either: (1) willfully exaggerates the amount due; (2) willfully includes a claim for work not performed or materials not furnished; or (3) prepares the notice of nonpayment with willful and gross negligence, which results in a willful exaggeration.  However, a minor mistake or good faith dispute as to the amount due will not defeat an otherwise valid claim against the bond.  Similarly, unless the mistake prejudices the contractor or the surety, a negligent inclusion or omission of information will not defeat a valid claim.  Nonetheless, payment bond claimants will need to be aware of this new risk, and will need to carefully and conservatively prepare and submit their sworn notices of nonpayment to avoid potential fraudulent notice of nonpayment defenses by contractors and/or sureties.

3. Time Limit To Serve Notice Of Nonpayment For Rental Equipment

Finally, the Bill makes important changes to the time limitations associated with submitting a notice of nonpayment.  As noted above, to be timely, a notice of nonpayment has to be served on the contractor and the surety no later than 90 days after the claimant’s final furnishing of labor, services, or materials to the project.  However, effective October 1, 2019, with respect to a claim for payment for rental equipment, the notice of nonpayment must be served no later than 90 days after the last date the rental equipment was on the job site and available for use.  Again, meeting the notice of nonpayment timing requirement is critical, as the failure to do so precludes a claimant from bringing a claim against the surety on the payment bond.

Conclusion

While this blog does not cover the full breadth of all the legislative changes, it highlights some of the key changes that all construction industry participants on privately bonded projects, and especially subcontractors, suppliers and laborers, need to understand and comply with, effective October 1, 2019.  Of course, the facts and circumstances of each project are unique, so you should consult an experienced construction law attorney regarding any specific issues or questions regarding payment bond claims and notice requirements.


Authors:
Ryan Maloney, Esq.
Alexa Nordman, JD Candidate


Read these blog articles for additional information about payment bonds in Florida:

Can the Language of a Payment Bond Limit its Duration?

Conditional vs. Unconditional Payment Bonds in Florida

Public Construction Projects in Florida: Bond Claims and Bond Requirements

 


[1] This article addresses certain key changes to section 713.23, Florida Statutes, which governs payment bonds on private projects.  Payment bonds on state and local government projects, and the claim requirements for such bonds, are governed by section 255.05, Florida Statutes.

[2] Fla. Stat. § 713.23(2).

[3] Claimants, other than laborers, that are not in contractual privity with the contractor must also serve a notice to the contractor that they will look to the bond to secure payment for their work before the claimant begins to furnish labor, materials or supplies to the project or within 45 days after the claimant begins to furnish labor, materials or supplies to the project.

[4] Fla. Stat. § 713.23(1)(d).

[5] Fla. Stat. § 713.23(1)(e).

CATEGORY: Florida Construction Industry Law Blog Practice Areas: ,