The Florida construction industry must be familiar with the impactful changes which have recently been made to the payment bond claim requirements on private projects under section 713.23, Florida Statutes, effective Oct. 1, 2019. If subcontractors, suppliers, and workers fail to comply, they lose their right to payment from the payment bond surety insurance. Owners and contractors must understand the changes in the sureties in order to determine if their claims are valid. The changes to section 713.23, Florida Statutes, made by House Bill 1247, can be reviewed in detail online in PDF form.
A payment bond is a three-party agreement that includes the property owner (oblige), the general contractor (principal), and surety. The surety guarantees that the contractor will pay subcontractors, workers, and material suppliers for their work on a construction project. A payment bond functions as security for payment instead of the right that subcontractors, workers, and suppliers would typically have to file a construction lien against the project. Instead, the individuals must bring their claims against the payment bond. As a result, claims of lien filed against the property will be transferred to the bond. Subcontractors, laborers, and suppliers must be familiar with and comply with the payment bond claim requirements on bonded projects.
Which Changes Should Payment Bond Claimants Know About?
1. Notice of Nonpayment
Under current law, in order to proceed with a claim against a payment bond, all potential claimants are required to serve a written notice of nonpayment to the contractor and the surety. This notice must be issued no later than 90 days after the claimant’s final provision of labor, services, or materials to the project. Filing late nullifies the right to recover payment.
House Bill 1247 made significant changes to the requirements of what must be included in the notice of nonpayment. The form includes numerous items of the required information, several of which are listed below.
- The name and address of the contractor
- The name and address of the surety
- The nature of the labor or services provided
- The nature of the labor or services to be provided, if known
- The materials furnished
- The materials to be supplied, if known
- The amount paid on the account
- The amount due as well as how much of the amount owed is for retainage, if any
- The amount to become due, if known
- The signature and address of the notice provider
All of the statements made in the notice of nonpayment must now be made under oath. In addition, the following declaration must be included: “I declare that I have read the foregoing Notice of Nonpayment and that the facts stated in it are true to the best of my knowledge and belief.” Should the notice fail to abide by these requirements, the claimant risks losing or impairing his or her rights under the payment bond.
2. Fraudulent Notice of Nonpayment
House Bill 1247 also creates a new concept of a fraudulent notice of nonpayment. Claimants will lose all rights under the payment bond if they serve a fraudulent notice of nonpayment.
A notice of nonpayment will be considered fraudulent in the following cases:
- The claimant willfully exaggerates the payment amount that is due.
- The claimant willfully includes a claim for work not performed or materials not furnished.
- The claimant prepares the notice of nonpayment with willful and gross negligence, resulting in willful exaggeration.
A minor mistake or good faith dispute regarding the amount owed will not defeat an otherwise valid claim against the bond. Payment bond claimants need to be aware of this new risk. They will need to carefully and conservatively prepare and submit their sworn notices of nonpayment to avoid the potential fraudulent notice of nonpayment defenses by contractors or sureties.
3. Time Limit to Serve Notice of Nonpayment for Rental Equipment
Lastly, House Bill 1247 changes the time limitations associated with submitting a notice of nonpayment. A notice of nonpayment must be served on the contractor and the surety no later than 90 days after the claimant’s final furnishing of labor, services, or materials to the project. Rental equipment is included under this time limit with some specific requirements to be met. Failure to file on time can preclude the claimant’s right to recover payment.
The changes listed above are only some of the more significant details of the legislative changes that have been made. Note that these changes apply to construction industry participants on privately bonded projects. Subcontractors, workers, and suppliers need to be aware of and adhere to these changes. The details of each project are different, so consult a professional regarding any issues or inquiries regarding payment bond claims and notice requirements.
For more information about obtaining a general contractor license in Florida, contact Contractors Reporting Services in Tampa, Florida at (813) 932-5244.