New Florida Statute Changes Retainage and Prompt Pay Requirements on State and Local Government Construction Projects

On May 25, 2023, Florida Governor Ron DeSantis signed into law Senate Bill 346 (“SB 346”), which makes substantial changes to Florida construction law regarding prompt payment and retainage requirements on contracts between state and local governments and construction contractors on Florida construction projects for these governmental entities.  These changes, which will be effective beginning on July 1, 2023, include changes to section 218.735, Florida Statutes, for local governments, and sections 255.073, 255.077 and 255.078 for state government entities, regarding creation of punch lists, prompt payment of retainage, and payment disputes.

A. Punch Lists

SB 346 requires governments to include in their contracts for construction services with contractors a process for developing a punch list of items to be completed for the project to be finally complete, and a process for determining the estimated cost to complete each item on the punch list.  The punch list must be created within 30 days after substantial completion of the construction services on projects with a cost of $10 million or less, and up to 45 days after substantial completion if the cost of the project exceeds $10 million.

Within 20 business days after the punch list is created, and after receipt of proper invoice or payment request from the contractor, the local government must pay the contractor the remaining contract balance that includes all retainage previously withheld by the local government, less an amount equal to 150% of the estimated cost to complete the items on the punch list.  Importantly, if the government fails to develop the punch list within the designated timeframes above, the contractor may submit a payment request for the entire contract balance, which must be paid by the government within 20 business days.

If the contractor fails to coordinate with the local government to create a punch list in the required timeframe and the local government has given the contractor written notice of the failure, then the local government may withhold 150 percent of the estimated costs required to complete the items the local government intended to include on the punch list, but must still pay the contractor the remaining contract balance, including retainage.  If the contractor fails to coordinate with the state governmental entity, the government is not required to process the contractor’s payment request for retainage.

B. Payment of Retainage

Once the contractor completes all the items on the punch list, then the contractor may submit a payment request for the amount that had been withheld based on the estimated costs to complete the punch list.  If a good faith dispute exists as to whether one or more items on the punch list has been completed in accordance with the contract, the government entity may continue to withhold up to 150% of the total costs to complete those items.  Under SB 346, the state and local government entities can withhold other sums subject to a good faith dispute by the government, but only if the dispute was made in writing pursuant to the contract, or if there is a claim under the payment and performance bond of the contractor under section 255.05, Florida Statutes.

C. Payment Disputes

SB 346 reduces the time for determination of contract disputes regarding payment requests for local government entities.  Specifically, the local government must commence dispute resolution proceedings to resolve the dispute within 30 days after the payment request is submitted, rather than the prior 45 days.  The local government must issue a final decision within 45 days after the date the payment request was received, rather than the prior 60-day time period.

Conclusion

The recent changes to change to Florida’s state and local government prompt payment and retainage laws provide additional clarity and important protections to construction contractors working with Florida state and local government entities on construction projects.  The changes should provide for a more predictable, orderly and timely project close-out and final payment process for construction contractors on state and local government construction projects in Florida.