Florida’s Local Government Prompt Payment Act (Florida Statute s. 218.735) contains helpful provisions to contractors and subcontractors working on local government projects (or projects that are neither owned by a state agency nor private entity that would be governed under different prompt payment acts). These provisions pertain to the generation of the punchlist and the release of retainage.
The contract between the general contractor and local governmental entity needs to provide for the generation of a single punchlist. The contract needs to specify the process required to generate the punchlist including the responsibilities of both the local governmental entity and contractor. For projects with estimated construction costs less than $10 Million, the punchlist needs to be generated within 30 days after substantial completion. For projects with estimated construction costs of $10 Million or more, the punchlist needs to be generated within 30 days after substantial completion; although, this may be extended by contract to up to 60 days after substantial completion.
If the punchlist is not provided to the contractor by the required date (through no fault of the contractor), the contract time for completion needs to be extended by the number of days the punchlist is delayed. Moreover, the contractor can submit its payment application for the retainage balance and payment of any undisputed amount must be paid.
If a dispute exists as to any item on the punchlist, the local governmental entity may only withhold up to 150% of the cost to complete such items. Once the contractor completes the items on the list, it can submit its payment request for retainage.
Importantly…and I repeat, importantly…warranty items or items not identified on the (single) punchlist may not impact the local governmental entity’s final payment of retainage! Also, if the local governmental entity is utilizing an Owner Controlled Insurance Program (known as “OCIP”), the local governmental entity cannot withhold retainage or delay final payment pending a final audit to determine the insurance premium.
The local governmental entity is entitled to withhold 10% retainage on progress payments until the project is 50% complete. After the project is 50% complete, the local governmental entity must reduce the retainage on future progress payments to 5%. The contractor may also submit a payment application to the local governmental entity for ½ of the retainage (5%) that the governmental entity was withholding until 50% completion (which must be paid unless there is a good faith dispute for withholding some or all of this retainage).
As it relates to subcontractors, the contractor can still withhold retainage greater than 5%; however, the “contractor shall notify the subcontractor, in writing, of its determination to withhold more than 5 percent of the progress payment and the reasons for making that determination, and the contractor may not request the reqlease of such retained funds from the local governmental entity.” Fla.Stat. s. 218.735(8)(c).
(This retainage reduction does not apply to municipalities with a population of 25,000 or fewer or counties having a population of 100,000 or fewer, meaning these local governmental entities can withhold 10% retainage until final completion.)
Florida’s Local Government Prompt Payment Act gives the general contractor the argument that only a single punchlist needs to be generated versus a never-ending punch list that the local governmental entity continues to add to so that there is no end in sight to the punchlist completion. It further allows the contractor to submit its payment application for its final contract balance of retainage if the punchlist is not timely generated through no fault of the contractor. Additionally, Florida’s Local Government Prompt Payment Act not only authorizes a reduction in retainage to 5% at 50% completion, but allows the contractor to bill for half of the withheld retainage that the local government was withholding through 50% completion.
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