Florida 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 firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.