VENUE FOR SUING PUBLIC PAYMENT BOND

shutterstock_96191135Public 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.

 

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.

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

shutterstock_330137966All 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).

 

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

 

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.

MILLER ACT AND “PUBLIC WORK OF THE FEDERAL GOVERNMENT”

UnknownThe Miller Act applies to the “construction, alteration, or repair of any public building or public work of the Federal Government.”  40 U.S.C. s. 3131.   

 

A recent opinion out of the Northern District of Oklahoma sheds light on what the Miller Act means regarding its application to any public work of the Federal Government.    See U.S. v. Bronze Oak, LLC, 2017 WL 190099 (N.D.Ok. 2017).   If the project is not a public works project of the Federal Government, the Miller Act does not apply.

 

In this case, the Department of Transportation entered into an agreement with the Cherokee Nation where the Department would provide lump sum funding and the Nation would use the money to fund transportation projects.   Based on the federal funding, the Nation issued a bid for a transportation project in Mayes County, Oklahoma and the project was awarded to a prime contractor.  The prime contractor provided a payment bond that identified the United States as the obligee (as a Miller Act payment is required to do) and stated that it was issued per the Miller Act.    Thereafter, the Nation and Mayes County, Oklahoma entered into a Memorandum of Understanding where the County would assume responsibility for the construction and maintenance of the project and the Nation would pay the County an agreed amount upon the completion of the project.

 

A subcontractor filed suit claiming the prime contractor owed it money for work performed on the project.  One of the counts asserted was against the payment bond – the subcontractor claimed it was a Miller Act payment bond.  The prime contractor and payment bond surety moved to dismiss the lawsuit arguing that the payment bond is not a Miller Act payment bond, thus, the federal court has no jurisdiction to entertain the lawsuit.  How could this be?  The payment bond itself said it was issued per the Miller Act and identified the United States as the obligee as a Miller Act payment bond is required to do.

 

The underlying issue the Court examined was whether the project was a public works project of the Federal Government.  Again, if it was not, the Miller Act did not apply.  The Court explained:

 

Whether plaintiff may bring a suit under the Miller Act depends on whether the project is a “public work of the Federal Government.” The statute itself gives no guidance in interpreting the phrase. While there is no clear definition or test for classifying a project a “public work of the Federal Government,” courts often look to the following factors: “whether the United States is a contracting party, an obligee to the bond, an initiator or ultimate operator of the project; whether the work is done on property belonging to the United States; or whether the bonds are issued under the Miller Act.” Here, on the one hand, the United States is not a contracting party or an initiator or ultimate operator of the project, and the work was not done on federal land. On the other hand, the United States is obligee of the payment bond, and the bond was issued under the Miller Act. Additionally, the Nation funded the project with money it received from the federal government…and the DOT retained some control over the project by requiring semi-annual reports on, and occasional access to for inspections….

Bronze Oak, LLC, supra, at *2 (internal citations omitted).

 

To the dismay of the subcontractor-claimant, the Court held that the payment bond was NOT a Miller Act payment bond irrespective of what the bond actually said.  This meant that the Court had no jurisdiction to entertain the lawsuit (as there was no other basis that would give the federal court subject matter jurisdiction).  Although the Federal Government had a relationship with the project through its federal funding, that relationship was not strong enough to label the project as a public works project of the Federal Government.

 

The United States is the obligee of the payment bond, but even with federal funding of the project, this is not enough to bring the project under the Miller Act. The project is owned and maintained by the County and is not on federal land. The Nation initiated the project, and the federal government is not a contracting party. Finally, agreements among the contracting parties that federal law will apply does not transform a project that does not fall under the Miller Act into one that does.

Bronze Oak, LLC, supra, at *4. 

  

This was a tough ruling because if the subcontractor filed suit in state court the prime contractor and surety likely would have moved to dismiss that suit at some point in time arguing that the state court had no jurisdiction to entertain a Miller Act payment bond claim.  So, this situation appeared to be a lose-lose to the subcontractor that relied on the terms of the bond in pursuing the bond as a Miller Act payment bond.   

 

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: SUBCONTRACTOR PAYMENT BOND = COMMON LAW PAYMENT BOND

imagesWhat is a common law payment bond?  A common law payment bond is a bond not required or governed by a statute.  For example, if a prime contractor provides the owner a payment bond, that bond will be a statutory payment bond.  On the other hand, if a subcontractor provides the general contractor with a payment bond, that bond will be a common law payment bond.  Why?  Because there is not a statute that specifically governs the requirements of a  subcontractor’s payment bond given to a general contractor.   The subcontractor’s payment bond is aimed at protecting the general contractor (and the general contractor’s payment bond) in the event the subcontractor fails to pay its own subcontractors and suppliers.  The subcontractor’s payment bond will generally identify that claimants, as defined by the bond, are those subcontractors and suppliers the subcontractor has failed to pay.  This common law payment bond is not recorded in the public records so sometimes it can be challenging for a claimant (anyone unpaid working under the subcontractor that furnished the bond) to obtain a copy of the bond. With that said, an unpaid claimant should consider pursuing a copy of this bond in certain situations, particularly if it may not have preserved a claim against the general contractor’s statutory payment bond.

 

Common law payment bonds have a one-year statute of limitations.  This statute of limitations runs from the later of (i) one year from the claimant’s final furnishing date or (ii) one year from the general contractor’s final furnishing date if the general contractor provided a payment bond on the 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.

MILLER ACT PAYMENT BONDS

Do you do work on federal construction projects?  Are you familiar with the Miller Act?  Below is a portion of a recent presentation on Miller Act payment bonds.

Download (PPTX, 120KB)

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.

DURATION OF PUBLIC PAYMENT BOND = FULL TERM OF PUBLIC CONTRACT

imagesFlorida Statute s. 255.05 governs public payment bond rights on Florida public construction projects (other than Florida Department of Transportation projects). This is an important statute for all that perform Florida public construction work!  (Check out this article for more information on s. 255.05 and this chart summarizing steps required to preserve payment bond rights.)   If you are subcontractor, sub-subcontractor or supplier on a Florida public construction project, you want to understand what you need do to preserve and perfect payment bond rights to secure any potential nonpayment.  And, if you are a prime contractor that furnished a public payment bond, you will likely be indemnifying your payment bond surety with respect to any payment bond claim.  You want to know those payment bond claims that are worth fighting and those that are worth spending the time and effort on the frontend to efficiently resolve because payment bond claims create a statutory basis to recover attorney’s fees. 

 

 

The recent opinion in Maschmeyer Concrete Co. of Florida v. American Southern Ins. Co., 2016 WL 3746379 (M.D.Fla. 2016) serves as an example of a contested public payment bond dispute between a supplier and payment bond surety.   In this matter, a prime contractor was awarded a concrete repair and construction contract from the City of Orlando in 2011.  The City’s acceptance letter to the prime contractor stated that the contract was for one year but could be renewed upon mutual agreement as provided in the City’s solicitation upon entering into an amendment to the contract.  The terms of the solicitation and contract allowed the City to renew the contract for four additional one-year terms.

 

Before the expiration of initial one-year term, the City sent an amendment to the prime contractor renewing the contract for an additional year.  The prime contractor signed the amendment.   The amendment required the contractor to submit a public (payment) bond, which the contractor furnished.  The bond stated that it was for a period of one year from 12/1/12 through 11/30/13.

 

Before the expiration of the second one-year term, the City sent another renewal amendment to the prime contractor renewing the contract for an additional year.   The prime contractor signed the amendment.   An updated bond was never furnished.

 

Before the expiration of the third one-year term, the City sent another renewal amendment to the prime contractor renewing the contract for an additional year. The prime contractor signed the amendment.  An updated bond was never furnished.  During this renewal period, a supplier furnished materials to the prime contractor that was utilized in the concrete repair and restoration work.  The prime contractor did not pay the supplier and the supplier initiated an action against the prime contractor’s public payment bond.

 

The surety argued that the supplier did NOT have payment bond rights because the supplier furnished materials after the expiration of the payment bond—after the11/30/13 duration listed in the bond.  The supplier argued that any expiration or duration limitation in the payment bond was unenforceable under s. 255.05 since a public payment bond cannot expand or limit the effective duration of the bond.  Fla. Stat. s. 255.05(e).   But, what does “effective duration of the bond” mean?  “The only reasonable interpretation of ‘effective duration’ of the Statutory [public ] Bond is a bond duration that corresponds with the full term of the Public Work Contract identified on the face of the Statutory Bond or incorporated by reference in the Statutory Bond.”  Maschmeyer Concrete Co. of Florida, 2016 WL at *4.  

 

Here, although the contract was for a one-year term, the terms of the contract / solicitation allowed it to be renewed an additional four years.  Thus, the City renewing the contract through amendments was authorized pursuant to the very contract that was identified and incorporated into the public payment bond.  The fact that the bond was never updated is of no moment because the bond legally had to remain in effect during the duration of the contract.

 

Under the surety’s argument, the supplier was s*** out of luck because the supplier furnished materials outside of the bond’s listed duration.  Hence, the supplier was furnishing materials to a project where there was no bond to protect its financial interests.  This gotcha-type argument does not seem reasonable.  There was a bond in place because the City required a bond.  Whether that bond was renewed or not should not make a difference because the contract was still in effect and the prime contractor was still performing under the contract after the listed duration in the bond.  To punish a supplier because the base contract is still in effect and being performed makes no rationale sense.   What does make sense, however, is that as long as a prime contractor is still performing base contract work, the public payment bond is still in effect to secure any potential 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.

 

 

DRAFTING THE BOND FORM, PARTICULARLY THE PERFORMANCE BOND FORM

imagesOftentimes, when it comes to payment and performance bonds (in particular), the bond forms are drafted by the obligee.  For example, an owner (as the obligee) may draft the bond forms that it wants its general contractor’s surety to execute.  And, a general contractor (as the obligee) may draft the bond forms that it wants its subcontractors’ sureties to execute.   As an obligee, it is always beneficial to draft the bond form (particularly the performance bond) that you want the surety to execute.  The bond is to benefit you—the obligee—so having a hand in creating conditions to trigger the application of the bond is important, specifically when it comes to triggering a performance bond upon the bond-principal’s default.

 

What if the surety executes a bond form prepared by the obligee and there is an ambiguity in the bond?  Should the ambiguity be interpreted against the obligee as the drafter of the bond?

 

This issue was addressed by the Fourth District Court of Appeal in The School Bd. Of Broward County v. Great American Ins. Co., 807 So.2d 750 (Fla. 4th DCA 2002) where the School Board owner prepared the performance bond form.  The surety argued there was an ambiguity with the bond form and wanted the ambiguity to be interpreted against the School Board as the drafter of the bond.  The court rejected this argument explaining:

 

Florida’s policy is to construe any ambiguity in a bond in favor of granting the broadest possible coverage to those intended to be benefitted by protection of the bond [e.g., the obligee]. This policy recognizes that the purpose of a bond is to protect a party to a contract; the burden is on the surety, who is in the business, to include the appropriate language in its bonds if it seeks to narrow its obligations after default.

The School Board of Broward County, 807 So.2d at 752 (internal citations and quotations omitted).

 

 

To reiterate, it is always beneficial as the obligee to prepare the bond forms (particularly the performance bond) that you want the surety to execute since the bond is designed to benefit you. Work with counsel to ensure the bond form provides you the broadest or best coverage based on the anticipated risks.    

 

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: PERFECTING & PRESERVING CONSTRUCTION LIEN & PAYMENT BOND RIGHTS

imagesYou are a subcontractor, sub-subcontractor, or supplier on a construction project.  What steps can you take to maximize your ability to collect payment?  

 

 

  1. Read this chart to understand what steps you need to undertake to preserve and perfect construction lien or payment bond rights. This chart will assist you with what notices you may need to serve to preserve your lien or payment bond rights and the timing to do so.  
  2.  Read this article that has tidbits to maximize payment on a private construction project.  This article will be beneficial for any subcontractor, sub-subcontractor, or supplier that performs work on a private construction project. 
  3. Take a look at the below presentation.  This is a presentation I put on with a notice company that summarizes steps you can implement to preserve your rights and increase your chances to timely collect payment.
  4. Please consult a construction attorney so that you can be proactive and not necessarily reactive when it comes to perfecting and preserving your rights.

 

Download (PPTX, 818KB)

 

 

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: TIMING TO SUE PUBLIC PAYMENT BOND FOR RETAINAGE ON PUBLIC CONSTRUCTION PROJECTS

imagesYou are a subcontractor (or sub-subcontractor) on a public construction project.  The general contractor has a public payment bond per Florida Statute s. 255.05.  You finished your scope some time ago but you are still owed retainage.  When do you sue for retainage?  There is a statutory retainage exception that governs the timing of when to sue for retainage.  Check out this article for the applicable statutory language regarding the retainage exception.  Timing is important to ensure that you do not prematurely sue for retainage or, worse, sue for retaiange after the statute of limitations expired.  

 

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: PERFECT PRIVATE PROJECT PAYMENT BOND RIGHTS IF NOT IN PRIVITY WITH GENERAL CONTRACTOR

imagesRemember, if you are not in privity of contract with the general contractor on a private project where the general contractor furnished the owner with a payment bond (e.g., sub-subcontractor or supplier), you NEED to perfect your payment bond rights by initially serving a notice of intent to look to the bond on the general contractor.  (Or, serve a notice to owner but make sure you serve a copy on the general contractor).  Not serving the general contractor with this initial notice can deprive you of payment bond rights.  How do you know if there is a payment bond in place?  Pull up the notice of commencement recorded in the official records where the property is located which should identify if there is a payment bond and will attach a copy of the payment bond.  

 

For more information on payment bond rights, check out this chart.

 

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.