PAYMENT BONDS AND PRELIMINARY NOTICE REQUIREMENTS FOR FLORIDA DEPARTMENT OF TRANSPORTATION (FDOT) PROJECTS

RoadworkPayment and performance bonds for Florida Department of Transportation (“FDOT”) projects are governed under Florida Statute s. 337.18.  These bonds are statutorily required for contract prices greater than $250,000 and the FDOT can waive the bond requirement for projects with a contract price of $250,000 or less if it determines the project will not endanger the public health, safety, or property.  (Payment bonds and performance bonds for other public projects, or non-FDOT projects, are governed under Florida Statute s. 255.05, and will not be specifically discussed in this posting.)

 

Section 337.18 contains the following relevant provisions applicable to FDOT payment bonds:

 

(1)(b) Before beginning any work under the contract, the contractor shall maintain a copy of the payment and performance bond required under this section at its principal place of business and at the job-site office, if one is established, and the contractor shall provide a copy of the payment and performance bond within 5 days after receiving a written request for the bond. A copy of the payment and performance bond required under this section may also be obtained directly from the department by making a request pursuant to chapter 119. A claimant has a right of action against the contractor and surety for the amount due him or her, including unpaid finance charges due under the claimant’s contract. The action may not involve the department in any expense. 

 

 

(1)(c) A claimant, except a laborer, who is not in privity with the contractor shall, before commencing or not later than 90 days after commencing to furnish labor, materials, or supplies for the prosecution of the work, furnish the contractor with a notice that he or she intends to look to the bond for protection. A claimant who is not in privity with the contractor and who has not received payment for his or her labor, materials, or supplies shall deliver to the contractor and to the surety written notice of the performance of the labor or delivery of the materials or supplies and of the nonpayment. The notice of nonpayment may be served at any time during the progress of the work or thereafter but not before 45 days after the first furnishing of labor, services, or materials, and not later than 90 days after the final furnishing of the labor, services, or materials by the claimant or, with respect to rental equipment, not later than 90 days after the date that the rental equipment was last on the job site available for use. An action by a claimant, except a laborer, who is not in privity with the contractor for the labor, materials, or supplies may not be instituted against the contractor or the surety unless both notices have been given.

 

 

(1)(d) An action must be instituted by a claimant, whether in privity with the contractor or not, against the contractor or the surety on the payment bond or the payment provisions of a combined payment and performance bond within 365 days after the final acceptance of the contract work by the department.

 

 

 

(1)(e) When a contractor has furnished a payment bond pursuant to this section, he or she may, when the department makes any payment to the contractor, serve a written demand on any claimant who is not in privity with the contractor for a written statement under oath of his or her account showing the nature of the labor or services performed to date, if any; the materials furnished; the materials to be furnished, if known; the amount paid on account to date; the amount due; and the amount to become due, if known, as of the date of the statement by the claimant. Any such demand to a claimant who is not in privity with the contractor must be served on the claimant at the address and to the attention of any person who is designated to receive the demand in the notice to the contractor served by the claimant. The failure or refusal to furnish the statement does not deprive the claimant of his or her rights under the bond if the demand is not served at the address of the claimant or directed to the attention of the person designated to receive the demand in the notice to contractor.The failure to furnish the statement within 60 days after the demand, or the furnishing of a false or fraudulent statement, deprives the claimant who fails to furnish the statement, or who furnishes the false or fraudulent statement, of his or her rights under the bond.

 

 

(1)(f) The bonds provided for in this section are statutory bonds. The provisions of s.255.05 are not applicable to bonds issued pursuant to this section.

 

 

imagesQL593J1UThe application of s. 337.18 was discussed in Ardaman & Associates, Inc. v. Travelers Cas. and Sur. Co. of America, 2009 WL 161203 (N.D.Fla. 2009), that involved a FDOT bridge restoration project.  FDOT hired the design-builder to replace damaged structures on a dual bridge that spanned Escambia Bay.  The design-builder hired the engineering firm and the engineering firm engaged a geotechnical engineer.  The geotechnical engineer sued for payment for services performed under the engineer that hired it as well as additional services it performed pursuant to an oral agreement directly with the design-builder.

 

The design-builder and its surety moved to dismiss the bond claim because the geotechnical engineer was supposed to serve its notice of intent to look to the bond pursuant to Fla. Stat. s. 337.18(1)(c) no later than 90 days after it commenced work and it did not serve this statutory notice until two years after it commenced work.  The geotechnical engineer countered that it did not have to serve the statutory notice of intent to look to the bond on the design-builder because (a) it entered into an oral agreement to perform additional services with the design-builder and, thus, was not required to serve the preliminary notice since it became in privity of contract with the design-builder and (b) the bond was never recorded in the official records and, therefore, the surety should be estopped from enforcing any statutory preliminary notice requirement.  (At the time of this lawsuit the statute required the bond to be recorded; this recording requirement has subsequently been removed from the statute and is no longer required for FDOT payment bonds.)

 

The Northern District disagreed with the geotechnical engineer’s first argument that the engineer did not need to serve the preliminary notice for the work it performed directly under the engineer that hired it.  The statute required the geotechnical engineer to serve the preliminary notice for this work since it was not in direct privity with the design-builder (contractor) when it performed this work.  In other words, the failure of the geotechnical engineer to serve this preliminary notice would deprive it of amounts it was seeking against the payment bond for work it directly performed under the engineer that hired it.

 

The Northern District further disagreed with the geotechnical engineer’s second argument that the engineer did not need to serve the required preliminary notice because the bond was never recorded.  (Although, as shown above in the statutory language, this recording requirement has been removed for FDOT payment bonds, it is still a requirement for payment bonds for other Florida public projects issued pursuant to s. 255.05.)  The Northern District held that the geotechnical engineer must allege (and ultimately prove) that its failure to timely serve the preliminary notice was caused by the design-builder’s failure to record the bond in the public records.  (Notably, this burden of proof is very, very challenging, especially for an entity that has performed public construction work and knows a payment bond is a requirement.)

 

Finally, the geotechnical engineer, as another argument to overcome its failure to timely serve the preliminary notice, contended that the payment bond should be deemed a common law bond because it was not properly recorded.  If the bond was deemed a common law bond than statutory notice requirements and time limitations would not be strictly construed. The Northern District disagreed with this argument and held that the payment bond at-issue specifically referenced section 337.18 and the statute specifically states that the bond is a statutory bond.

 

Valuable take-aways:

 

  • Do not neglect serving your preliminary notice to enforce your bond rights.  Know that the requirements of a FDOT project are different than other public projects governed under Florida Statute s. 255.05.  The key is to know that preliminary notice needs to be served and serve it immediately. Work with your notice company or counsel to ensure the required preliminary notice is correctly served based on the construction project you are undertaking.  For more information on a preliminary notice company and preliminary notice requirements for private projects, please see: http://www.floridaconstructionlegalupdates.com/serving-preliminary-lien-payment-bond-notices-on-private-projects/.

 

  • The best course of action is really never to argue that a statutory payment bond for a public project is a common law bond.  It presents a challenging hurdle for the claimant.  Indeed, section 255.05 (again, for non-FDOT public projects) provides that “such bonds shall not under any circumstances be converted into common law bonds.” Fla. Stat. s. 255.05(4).   Interestingly, and for whatever reason, s. 337.18 does not contain this added language although it does provide that the bonds provided per this section are statutory bonds.

 

 

  • The provisions of s. 255.05 are not applicable to the FDOT payment bond issued pursuant to s. 337.18.  While the court may look to cases interpreting s. 255.05 for guidance, the fact remains that the statute explicitly distinguishes itself from the s. 255.05 bond requirements.  Be aware of this when performing a FDOT project.

 

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.