Gary L. Brown | Construction Executive
Before Florida updated its laws for construction bonds, there were some significant differences between how liens and bond claims were litigated. Forms and procedures lacked uniformity that created unnecessary challenges for the construction industry and legal practitioners serving the industry.
Now, more consistency among the laws should benefit contractors, as well as lower-tiered subcontractors and suppliers. Since the updates were instated in October 2019, some of the procedures and rules used for lien enforcement have been extended to bond claims, which may make it easier to resolve differences over payment and performance.
That should come as a relief to local contractors and law firms, as well as to the numerous developers and construction companies based outside of Florida that operate in the state or are considering doing so. Florida is now the number one destination for new residents, especially from high-tax states, according to IRS data. With them come new homes, retail centers, offices, industrial space, roads and other infrastructure in what is now the third-most-populous state in the nation.
Despite its economic advantages and good weather, Florida has been somewhat hampered by complex lien and bond laws. Inconsistencies between rules and procedures for lien enforcement and bond claims, both for public and private projects, have evolved with no clear reason. The amended laws have resolved some of the differences, which may, in turn, result in earlier resolution of bond claims. For example, some of the changes have added further requirements for presenting a bond claim, which should result in dubious claims—that previously may have lingered—being resolved, through outright rejection or withdrawal, earlier on in the process. On balance, other changes should protect bond claimants from having their claims barred as a result of an honest mistake in determining the amount due or other information contained in the forms used to make a bond claim.
Before the law was amended, notices of non-payment for bond claims, unlike liens, did not have to be signed under oath. Now, notices of non-payment must be sworn to. Further, while the proper form of a lien was spelled out in the lien law, applicable bond statutes did not set forth the acceptable form of notices of non-payment for bond claims. Now, the statutes set forth the required information in a notice of non-payment for both public and private projects.
One of the most significant changes is that the standard for “fraudulent lien” under the lien law has now been extended to bond claims. A notice of non-payment is now statutorily “fraudulent” if the claimant “has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration.” And like a “fraudulent lien,” a finding that a notice of non-payment is “fraudulent” under the statutory definition above is a complete defense to a bond claim.
Also similar to lien claims is the protection afforded to lienors who make an honest mistake in putting together their lien. Under the revised law, the “negligent inclusion or omission of any information in the notice of non-payment that has not prejudiced the contractor or surety does not constitute a default that operates to defeat an otherwise valid bond claim.”
Further, similar to the lien law, “a minor mistake or error in a notice of non-payment, or a good faith dispute as to the amount unpaid does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond.”
On balance, these changes level the playing field by, on the one hand, providing for more stringent requirements and penalties for a claimant’s failure to comply with the statutory obligations, but on the other hand, providing protection for claimants with legitimate bond claims who, in good faith, make an honest mistake in putting together their bond claim.
To illustrate these changes in practice, if a subcontractor that is entitled to $100,000 for work performed makes a “fraudulent” bond claim for $150,000, that company will forfeit its entire claim. However, if the company can show it made an honest mistake in calculating the amount of its claim, and that instead of $150,000, it was only entitled to $100,000, the court may enforce the lesser amount.
Another change that will benefit contractors deals with attorney’s fees awarded to the “prevailing party” on a bond claim. With payment bond claims, a contractor defending them could recover its attorney’s fees if it prevailed. However, the same contractor pursuing a payment bond or performance bond claim against its subcontractor’s surety as an “obligee” under the bond, was not entitled to recover attorney’s fees if it prevailed. Under the amended law, contractors are now entitled to recover their attorney’s fees if they prevail in a bond claim action against a surety.
A few other less significant changes in the law that have brought about consistency in lien and payment bond claims include the following. The value of rental equipment may now expressly be the basis for a bond claim on private projects, as has been the case for lien claims on private projects and bond claims on public projects. Also, a company must specify the amount of retainage included in the notice of non-payment for private bond claims, just as it always was required to do with a lien claim and the notice of non-payment for a public bond claim.
To be sure, these changes will not put an end to bond claims or litigation over them. But they do bring about more consistency and fairness—to both contractors and subcontractors—in the process of pursuing or defending bond claims. As a result, these changes should be welcomed by national developers and contractors, along with local contractors, subcontractors and sureties. Many other states have lien laws, some similar to Florida, and would be wise to review their statutes for ways to emulate what Florida has accomplished.