Payment bonds can provide valuable security to those who invest their labor, materials, and services in improving another’s property. In Florida, governmental entities are prohibited from making payment on a contract for more than $200,000 for the construction of a public building, the prosecution and completion of a public work, or for repair of a public building or public work, until the contractor has procured and recorded a payment bond for the project. These bonds are sometimes referred to as 255.05 payment bonds. One of the main purposes of a 255.05 payment bond is to protect subcontractors, sub-subcontractors, and material suppliers. To be eligible to claim against a 255.05 payment bond, it is necessary to comply with certain statutory requirements.
Those not in privity with the bonded contractor ordinarily must comply with certain notice requirements to be eligible to claim against a 255.05 payment bond.
The first is a preliminary notice. The preliminary notice must be served on the bonded contractor. It informs the bonded contractor that the person giving notice intends to look to the bond for protection in the event of nonpayment. The preliminary notice must be served within 45 days of when the claimant commences to furnish labor, services or materials for the work.
The second notice required under the statute is the notice of performance and nonpayment (“NPNP”). Those who are not in privity with the bonded contractor must serve a NPNP on both the contractor and the surety.
The NPNP may not be served earlier than 45 days from first furnishing. The NPNP is untimely if served later than 90 days after the claimant’s final furnishing of labor, services, or materials for its work. For the non-privity rental equipment supplier, the NPNP must be served no later than 90 days after the rental equipment was last on the job site and available for use. Importantly, the statute specifically requires that the non-privity claimant set forth in the NPNP the portion of the amount claimed that is for retainage.
While subcontractors and material suppliers contracting directly with the bonded contractor have no obligation to serve either a preliminary notice or a NPNP, the nonprivity claimant who fails to serve timely both of those notices usually will be barred from recovery against the payment bond. Circumstances may arise, however, where the failure to provide notice is not the fault of the claimant.
It should be noted that “service” is a defined term. The statute contains specific requirements for how a 255.05 payment bond claimant must provide the notices to the contractor and/or the surety. Failure to properly “serve” the notices in compliance with the statute may result in the loss of the bond claim.
The contractor who provides a 255.05 payment bond for a project has the right to demand certain information from non-privity sub-subcontractors and suppliers. This demand is usually referred to as a demand for statement of account.
The demand must be written and asks the sub-subcontractor or material supplier to provide “a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any; the materials furnished; the materials to be furnished, if known; the amount paid on account to date; the amount due; and the amount to become due, if known, as of the date of the statement by the claimant.”
The bonded contractor’s demand should be served at the address and to the attention of the person designated in the preliminary notice to receive notices.
The sub-subcontractor or material supplier who receives such a demand should be careful to provide a complete and accurate written statement under oath within 30 days. The would-be claimant who fails to do so may forfeit its payment bond claim.
A lawsuit on a 255.05 payment bond must be filed within one year of the claimant’s last work or last furnishing of materials. Failure to timely file the lawsuit can provide the bonded contractor and surety with a complete defense to the payment bond claim.
If the claim is for retainage only, certain conditions must exist before the lawsuit may be filed. A claim for retainage will be premature unless a statutorily-defined amount of time has elapsed after either: (a) the public entity paid the claimant’s retainage to the contractor, (b) the contractor submitted its final payment request to the public entity, or (c) substantial completion was reached or the public entity got beneficial use.
Whether those conditions exist may not be known to the would-be claimant seeking to recover retainage, so the statute provides him or her with the right to make a written request to the bonded contractor to determine the status of those conditions. If the conditions have not been met, the lawsuit for retainage only may not be filed, but the one-year limitation period is extended until 120 days after one of the conditions is met. If the contractor’s response to the written request shows that one of the conditions has been met, or if the contractor fails to respond to the claimant’s request within 10 days, the lawsuit may be filed.
Attorney’s fees may be recovered in an action on a 255.05 payment bond, even if the payment bond claimant’s contract does not provide that right. The statute specifically states that the prevailing party is entitled to recover a reasonable fee for the services of its attorney.
Payment bonds can provide excellent security for a customer’s failure to pay. Procedures should be adopted for ensuring that a copy of the payment bond is obtained and that all notice and other statutory requirements are properly and timely satisfied.
The construction bond attorneys at the Law Office of Robert S. Tanner, have substantial experience with payment bond claims and defenses. Call today for more information about securing your payment bond rights, asserting a payment bond claim, prosecuting a lawsuit to enforce payment bond rights, or defending a payment bond claim.
 In the typical construction relationships, privity exists between parties who have agreements between them but privity does not exist when there are no agreements between them. As an example, when a contractor and subcontractor are mutually bound by a contract, they are said to be in privity. On the other hand, when the subcontractor enters into a sub-subcontract or purchases materials from a material supplier, the contractor is not in privity with the sub-subcontractor or the material supplier but the subcontractor is. Privity exists where parties have a relationship out of which a mutuality of interest arises.