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The subcontract contingent payment clause: how does it affect the construction industry?

A contingent payment clause in a subcontract is the clause that provides that the subcontractor assumes the risk of owner nonpayment. Such clauses are favored by contractors for the ostensible purpose of managing the risk of owner nonpayment. Subcontractors are often forced to accept the risk of owner nonpayment in a subcontract with a contingent payment clause even though they can least afford to accept that risk. Nonpayment for construction work will create practical problems regardless of legal issues. A smaller subcontractor may not have the option of slowing down or stopping work in the face of nonpayment, whether there is a legal right to get paid, and has an even worse choice in continuing to perform without payment.

Which Clause?

Florida courts have held that the issue of whether a subcontract transfers the risk of owner nonpayment is an issue of law (contract interpretation). (1) Any ambiguity in the language will preclude enforcement of the clause as creating a contingent payment obligation and leave it as a time of payment clause. A time of payment clause requires payment to the subcontractor within a "reasonable time" in order to allow the contractor some time to receive payment from the owner. Courts are not clear on any particular period being a reasonable time for payment. (2) The "reasonable time" for postponing payment has been defined to be the time within which the general contractor is actively pursuing collection, while there remains a reasonable likelihood that the general contractor will actually collect the payment due from the owner. (3) Two Florida courts have been the most beneficent in the country to the subcontractor with respect to when payment is due under a time of payment clause. One Florida court has held that 1) reasonable time occurred as of the writing of the appellate opinion, but was still a fact issue. (4) The second court held that 2) 90 days from completion of the work was a reasonable time (however, the reasonable time of 90 days was agreed between the parties in that case). (5)

A contingent payment clause (6) in a subcontract clearly communicates that the subcontractor assumes the risk of owner nonpayment. (7) Courts have generally held that where there is a contract with an enforceable contingent payment clause, the subcontractor may not avoid or get around the contingency in the express subcontract by making an equitable claim for unjust enrichment. (8)

Effect of the Subcontract Contingent Payment Obligation

* Owners--In most cases the owner's goal is to obtain the completed construction promptly so that the owner can occupy, rent, use, live in, or sell the completed construction. Generally, the owner wants the job completed as soon as possible or by a time certain. The owner does not want to pay more than a reasonable amount for the improvements, nor pay twice for the same work (for obvious reasons). The owner could be forced to pay twice if 1) the owner failed to comply with statutory construction lien procedures, or 2) the owner overpaid a defaulting, un collectible contractor. Looking at the owners' interests, timely completion and paying only once for work done, what is the impact of the contingent payment clause in the subcontract?

1) Timely Completion--Timely completion of the work is a key owner goal. However, when a subcontractor does not get paid the funds it needs to pay for its labor and materials, that subcontractor may do one of the following:

a) Search for creative reasons to stop performing or slow down the performance (and cash outflow) of the work. If the subcontractor searches for and finds a reason (other than nonpayment, the real reason) to stop the work, the result may be the subcontractor making a claim and/or seeking a time extension. The administrative activity addressing possible "creative" claims, along with the slowing or stopping of the work itself, directly and adversely impacts the owner's interest in getting the job timely completed.

b) If the subcontractor is financially able to continue with the work despite lack of payment, and chooses to abide by the law, the contingent payment clause works to the benefit of the owner. However, if the subcontractor cannot or will not perform without payment, despite the legal obligation to continue, the paying party (owner or prime contractor) may be faced with being right, but perhaps "dead right." With a subcontractor who cannot or will not work without funds, the owner or prime contractor is looking at a job completion problem and perhaps a legal claim.

2) Lien Claim--Where the defense to enforcement of a subcontractor lien claim is alleged to be owner nonpayment and the work for which payment is sought has been performed by the lien claimant, the merit of a position of owner nonpayment to the contractor without a good faith reason rings hollow. (9) When the general contractor shifts the risk of owner nonpayment by a clear contingent payment clause, what purpose is served by the defendant owner claiming that the condition precedent of owner payment to the contractor has not been performed? If the subcontractor does assume the risk of owner nonpayment, what is wrong with the subcontractor pursuing payment directly from the source, the owner, by enforcing a claim of lien against the owner and its property?

Remember that, in Florida, a construction lien may be recorded for amounts owed for work performed, not just for sums due. (10) The time within which a construction lien may be recorded should not relate to any time or duty of payment under the lienor's contract, but it relates to the last date that work was performed under the authorized contract (or the time that the prime contract was terminated). (11) Thus, nonperformance of the condition precedent of owner payment to the contractor is not a basis upon which to defend the lienor's construction lien remedy. The lien should be enforced for sums unpaid and owed that made the property more valuable (to the extent of the reasonable unpaid value thereof), regardless of the ability of the subcontractor lienor to sue the general contractor for breach of contract. The claim for breach of contract is a separate remedy. (12) The sums that are exposed for recovery by the subcontractor lienor for lien enforcement are the amount of the contract price owed (not due) for the value improved, less proper payments made by the owner. (13) The amount that has been paid to the general contractor for the subcontractor's work is not an issue in the lien enforcement case against the owner, except to the extent of proper payments to the contractor prior to receipt of the lienor's notice to owner; or releases given by the lienor. However, once a subcontractor has served a notice to owner, the owner cannot make a proper payment to the contractor without getting a release from that subcontractor if that subcontractor is owed funds. (14) The value of the work performed, and proper payments are issues to be addressed in the lien enforcement action. Thus, the contingent payment subcontract clause does not benefit the owner as a defense to a lien, just as the proper payment defense under the lien law does not apply to contract or payment bond claims. (15)

3) Payment Only Once--The owner is generally well advised to obtain a release of lien (as well as release of contract rights and equitable claims) from every person who can make a claim for payment against the owner and/or the owner's property, to the extent of each payment being made. If the owner is seeking a release from the contractor and everyone under the contractor who could make a claim for payment against the owner and/ or the owner's property, (16) how do the subs and suppliers give a release of their portion of the funds sought by the contractor to facilitate the owner paying the contractor when the subs and suppliers are not paid or entitled to be paid unless and until the contractor gets paid?

There are several methods to address this issue created by the subcontract contingent payment clause that affect the owner, which include:

a) Require from all potential claimants a release for prior payments made, and a contingent release for the current payment sought. Once payment is made for the payment sought, then the contingency has been performed and the release is no longer conditional as to the payment sought (and then made).

b) A monthly payment meeting could be scheduled to obtain and simultaneously exchange releases for payments to the contractor and subcontractors.

c) There could be escrow arrangements made through a third party, or conditional delivery of releases to a third party, pending receipt of payment. This is administrative red tape that adds to the cost of the project. When dealing with a knowledgeable subcontractor who is not willing to release claims on faith before receiving payment for the work being released, these extra steps may put the owner at risk of inability to receive funding from the lender, or defending subcontractor lien claims due to a possible misstep in the payment process.

* Contractors, Construction Managers, and Subcontractors--The contractor, or a construction manager (CM) at risk, is the construction participant who is the primary supporter and beneficiary of the subcontract contingent payment clause.

One way for a contractor to manage the risk of owner nonpayment, and to avoid being caught in the middle of subcontractor claims when the owner does not pay, is to act as the CM for the owner. With respect to trade contractors, the CM does not contract on its own account. If the trade contracts are executed by the CM as agent for the owner, pursuant to authority of the owner, then the payment obligation is owed directly from the owner to the trade contractor. The CM simply reviews invoices and opines as to whether payment has been earned. It is the owner's obligation to pay the trade contractors directly. The CM is not caught in the middle of the payment dispute beyond opining as to whether the payment was earned. Any legal action for nonpayment of contract sums by the trade contractors against the owner need not involve the CM as a party. The benefit to the contractor/CM of the direct payment to trade contractor arrangement is that the contractor/ CM avoids the risk of owner nonpayment for major trade work.

The contingent payment clause may be effective as a cash flow management tool, if the subcontractor is financially strong. There are large, well-financed subcontractors, and there are undercapitalized subcontractors who cannot pay bills without payment from the contractor. There are many good or adequate tradesmen who fancy themselves as business people and not just tradesmen. Many become subcontractors. Some do well and grow into larger businesses. Many fail.

There is nothing inherently wrong with a subcontract that shifts the risk of owner nonpayment to a subcontractor. Some courts have so held. (17) However, when the subcontractor is either unaware (18) or has undertaken the risk of owner nonpayment without sufficient capital, problems occur. The most prevalent complaint about contingent payment clauses is that the subcontractor is the one who accepts the risk of owner nonpayment in order to get work, when it can least afford to do so.

When a subcontractor is required to furnish a warranty for its work, the warranty may be used as leverage to obtain contingent final payment. Many roofing contractors, mechanical contractors, and elevator contractors, for example, provide in the subcontract (or in the warranty that is required by the subcontract) that the warranty is not effective, or is suspended, unless and until final payment is made. These warranties are an important and valuable aspect of the work. Conditioning the delivery or effectiveness of the warranty upon receipt of final payment can be an effective bargaining tool to obtain final payment, whether or not there is a contingent payment clause in the subcontract.

What Is the Problem?

Understanding that all participants in the construction process would prefer not to have payment issues, what is the problem with a contingent payment clause? 19 Legal purists argue that there is no reason to meddle with freedom of contract. If the subcontractor has freely entered into the subcontract, then this is an agreement that should be enforced in accordance with its terms. (20) When the subcontractor cannot pay its obligations and proceeds with the work without receiving payment, despite a legal obligation to do so, problems arise. The contingent payment clause becomes problematic in the following circumstances:

1) The subcontractor lacks the financial ability to continue performing without payment from the contractor. Typically the subcontractor was imprudent in signing a contingent payment clause, but did so without fully understanding it, or with the hope that the contingency would never become an issue (a very naive approach).

2) The contractor and/or the owner have conspired to avoid payment to the contractor, who owes most, if not all, of the payment to subcontractors. Texas has legislated that a sham relationship will avoid a contingent payment clause. (21) Under Florida law, a contractor cannot act in bad faith to create a defense to liability but must comply with the implied covenant of good faith and fair dealing. (22) If the contractor acts in bad faith by not actively pursuing owner payment, such action could avoid the contingent payment clause based on bad faith. (23)

A bad faith claim usually requires legal action for the subcontractor to prove conspiracy or fraud in order to avoid the contingency. In some cases, the subcontractor cannot afford such litigation and just leaves the job, perhaps closing its doors. The contractor and owner are forced to complete the job with others, but may use the money owed to the original subcontractor to pay the added costs of a new trade contractor. However, such savings may be lost if the previous subcontractor files a lawsuit for fraud or conspiracy. In addition, the completing contractor may cost more to complete the work than the original amount owed to the original subcontractor.

3) There is no alternative remedy to allow the unpaid subcontractor to go to a source of payment other than the contractor, such as a lien or payment bond. An alternative remedy may give the subcontractor more comfort to proceed, but an alternative remedy may still not be adequate to address the subcontractor's cash flow issue. It is critical for a subcontractor to timely serve a notice to owner and/or bond notice so that the alternative remedies are available if needed.

When the subcontractor cannot (or will not) continue to work without funding, the contractor (and to some degree the owner) are faced with supplementing the work force, declaring a breach for nonperformance, and then completing the job with others; or reaching some compromise with the subcontractor and its laborers/suppliers to make payment for remaining work to complete the project, despite a lack of legal liability for payment pursuant to the terms of the subcontract. These alternatives assume that the contractor has the resources to do anything. Alternatively, if the original subcontractor is not capable of proceeding with the work, then the contractor may supplement the work force of the nonperforming subcontractor, or terminate the original subcontractor and arrange to complete the work with others. Termination and completion with others may be a more expensive alternative to having the original subcontractor complete the project with some financial help. Adding a replacement trade contractor may also impact permitting and warranty obligations.

* Sureties--Sureties for contractors support contingent payment clauses in subcontracts. A surety stands in the shoes of the principal (contractor). Thus, if the contractor has no obligation to pay payment bond claimants by virtue of a contingent payment clause, then the surety argues that it has no obligation to pay those claimants.

Courts have gone both ways on enforcing a contingent payment clause as a defense to a payment bond claim against a surety. Generally, the result depends on whether the bond is a common law bond issued on private work in addition to lien rights, or whether the bond is a statutory bond that is a substitute for lien rights. Some courts have allowed a contingent payment clause in a subcontract to be enforced as a defense by the surety. Those courts stood on the basic legal principle of suretyship to the effect that the surety stands in the shoes of the bond principal. (24) The surety has no liability unless the bond principal has triggered a default (under the bond) by nonpayment.

Other courts have used various reasons to avoid the contingent payment defense to a payment bond claim. In some instances, the courts have held that while the clause is in the subcontract, it is not enforceable against the surety unless the contingent payment language is in the bond. (25) The bond and the contract are considered separate obligations. In many cases, the subcontract is incorporated by reference into the bond, which negates that argument. Other courts have held that when the bond language says that liability exists for sums "justly due," the term "justly due" implies that there is a subcontract that must be read in pari materia with the bond. (26) Still other courts outside of Florida have held as a matter of public policy that a contingent payment clause in a subcontract may not be used to make the subcontractor assume the owner risk of nonpayment. (27)

If the bond acts as a substitute for lien rights (F.S. [section] 713.23 or [section] 255.05), or if the bond is a Miller Act bond, (28) courts have held that these bonds are "special," because they substitute the bond claim for a cumulative lien right against real property. Florida case law interpreting such statutory bonds generally does not allow the surety to assert a subcontract contingent payment defense. (29) However, a surety may assert a failure of the condition precedent if the subcontractor fails to furnish a release as a condition precedent to payment. (30)

Florida has created a special statutory bond for use with contingent payment clauses in subcontracts on private work. (31) There are two statutory payment bonds that may be given by a contractor on private property improvements. The exemptory statutory payment bond, which does not recognize the contingent payment clause as a defense, exempts the real property from claims of lien of anyone working under the bonded contractor. (32) The other more recent statute, (33) created for the case in which the contractor wishes to use contingent payment clauses in subcontracts, provides for a bond that exempts the property from liens, but only to the extent that the owner has paid the contractor. (34) If the contractor does not agree that the owner has been paid for the work of the subcontractor who liens, the subcontractor lien remains against the property until it is decided whether the owner has paid for the work described in the claim of lien. The creation of the contingent payment bond has made it more difficult for an exemptory bond surety (F.S. [section] 713.23) to claim benefit of the contingent payment clause. The argument exists that to use the contingent payment clause as a valid defense, a F.S.[section] 713.245 bond must be used for this purpose.

Where there are no lien rights, but instead there are bond rights legislated as a substitute for lien rights (such as Miller Act bonds or state Little Miller Act bonds), the liability for payment to the subcontractors rests ultimately with the contractor and its surety (and ultimately the indemnitors). When the payment bond is a substitute for lien rights, or when states do not recognize a contingent payment clause as a defense to a payment bond claim, the surety and its bond principal contractor have liability for payment to the subcontractors. (35) The ability to manage the risk of owner nonpayment by use of a subcontract contingent payment clause is lost. This places the risk of owner nonpayment squarely on the shoulders of the contractor and its surety without regard to funding from the owner.

Is it fair and equitable to the contractor to be forced to shoulder the risk of owner nonpayment without the ability to pass that risk through to subcontractors? Some would argue that the contractor has the greater ability to assess the risk of taking the job. Thus, if the decision is made to take the job, perhaps the contractor should suffer the owner nonpayment risk. The same argument can be made in some cases for the contractor as is made on behalf of subcontractors: competition forces the contractor to take jobs, whether or not it has the capital to withstand owner nonpayment. Not all contractors are well capitalized.

Is There Any Appropriate Legislation?

When social legislation is considered to "protect the little guy," that situation is often fraught with problems. How do you define "the little guy?" Once you define "the little guy" what protection do you give him? While one could argue that a subcontractor who cannot make payroll without prompt payment should not assume the risk of owner nonpayment, not all contractors are large firms either. Why is it wrong for the smaller contractor to manage the business risk of owner nonpayment with subcontract contingent payment clauses?

If the subcontractor can pursue lien rights despite a contingent payment clause, the alternative lien remedy is particularly equitable, in that it allows the subcontractor to pursue payment from the ultimate recipient of the work despite the prohibition of recovery from the contractor (middleman) under the contract. Florida has a somewhat unique law prescribing lien enforcement that allows a personal money judgment against a contractor by an unpaid subcontractor lienor. (36) If the owner has received the work and has not paid for the work, then the owner is the party that should be pursued for payment.

The use of a statutory contingent payment bond for private work in Florida appears to be an acceptable solution to the risk of owner nonpayment where applicable law authorizes the use of such a bond. (37)

One area that may be particularly appropriate for legislation to protect "the little guy" subcontractor arises in situations in which the subcontractor is qualified or certified as a disadvantaged small business entity (DBE). The use of small business entities, when required on public projects, is seldom more than a minor percentage of the work. Thus, if the contractor were obliged to make payment and not use contingent payment clauses with disadvantaged small business entities (by virtue of a statute or ordinance), such a provision might actually protect "the little guy" who cannot withstand a payment contingency. Some local governments have given protection to certified disadvantaged business contractors involved with public contracts by enacting ordinances that require payment to subcontractors within a particular period from the date of billing from the contractor to the owner. (38) A contract that is at variance with the ordinance would be a violation of the disadvantaged business enterprise ordinance. Such a contract provision would be unenforceable. There could be legislated a certification of a DBE for unenforceability of contingent payment clauses on private work. Finally, contingent payment clauses could also be declared unenforceable by statute, which is the approach in several states. Outlawing contingent payment clauses in Florida would be a tough sell at the legislature because contractors, sureties, subcontractors, and owners, are not in agreement on the need for such legislation.

(1) Peacock Construction Co. v. Modern Air Conditioning, Inc., 353 So. 2d 840, 841 (Fla. 1977).

(2) Moore v. Continental Cas. Co., 366 F. Supp. 954, 956- 57 (W.D. Okla. 1973) (two years was reasonable); Avon Brothers, Inc. v. Tom Martin Construction Company, Inc., 2000 WL 34241102 (N.J. App. 2000) (more than three years was reasonable); Midland Engineering Co. v. John A. Hall Constr. Co., 398 F. Supp. 981 (U.S.D.C. Dist. Ind. 1975).

(3) Thos. J. Dyer Co. v. Bishop Intern. Engineering Co., 303 F.2d 655 (6th Cir. 1962); Statesville Roofing & Heating Co., Inc. v. Duncan, 702 F. Supp. 118 (U.S.D.C. W.D.N.C. 1988). But see Nalley v. Harris, 176 Ga. App. 553, 336 S.E.2d 822 (Ga. App. 1985) (where a condition precedent was determined to be performed by exercising good faith efforts to achieve the contingency).

(4) Harris Air Systems, Inc. v. Gentrac, Inc., 578 So. 2d 879 (Fla. 1st DCA 1991).

(5) Bentley Const. Development & Engineering Inc. v. All Phase Elec. & Mntnce. Inc. , 562 So. 2d 800 (Fla. 2d DCA 1990).

(6) The clause under discussion is the one where the contractor must receive payment for the work of the subcontractor. There may well be other conditions precedent to payment, but receipt of payment by the contractor is the focus of this article. See 17B C.J.S. Contracts [section] 579.

(7) Nicholas Acoustics & Specialty Co. v. H & MConst. Co., Inc., 695 F.2d 839 (5th Cir. 1983); OBS Co., Inc. v. Pace Const. Corp., 558 So. 2d 404 (Fla. 1990); Power & Pollution Services, Inc. v. Suburban Power Piping Corp., 598 N.E.2d 69 (Ohio App. 1991); Koch v. Construction Technology, Inc., 924 S.W.2d 68 (Tenn. 1996).

(8) R.N. Robinson & Son, Inc. v. Ground Imp. Techniques, 31 F. Supp. 2d 881 (U.S.D.C. D. Co. 1998); Pilar Services, Inc. v. NCI Information Systems, Inc., 569 F. Supp. 2d 563 (U.S.D.C. E.D. Va. 2008); Centex Constr. v. Acstar Ins. Co., 448 F. Supp. 2d 697, 707 (U.S.D.C. E.D.Va. 2006); Raymond, Colesar, Glaspy & Huss, P.C. v. Allied, 961 F.2d 489 (4th Cir. 1992).

(9) Even in states that have not found contingent payment clauses to be violative of public policy.

(10) Fla. Stat. [section][section] 713.06(1) and 713.08(1)(g) (2011).

(11) Fla. Stat. [section] 713.08(1)(5) (2011).

(12) Fla. Stat. [section] 713.30 (1997).

(13) Fla. Stat. [section][section] 713.06 and 713.08 (1997).

(14) Fla. Stat. [section] 713.06 (1997).

(15) Coordinated Constructors v. Florida Fill, Inc., 387 So. 2d 1006 (Fla. 3d DCA 1980).

(16) The Florida Supreme Court has held that when 1) a prime contract requires the contractor to pay the subcontractors before the contractor is entitled to payment, 2) there is a contingent payment clause in the subcontract, and 3) the prime contract is incorporated by reference into the subcontract, then the conflicting payment terms render the contingent payment clause ambiguous. An ambiguous payment clause will be interpreted as being a time of payment clause. See OBS Co. v. Pace Constr., 558 So. 2d 404 (Fla. 1990).

(17) Robert F. Wilson, Inc. v. Post-Tensioned Structures, Inc., 522 So. 2d 79 (Fla. 3d DCA 1988); J.J. Shane, Inc. v. Aetna Cas. & Sur. Co., 723 So. 2d 302 (Fla. 3d DCA 1998); DEC Elec., Inc. v. Raphael Const. Corp., 538 So. 2d 963, 965 (Fla. 4th DCA 1989); Berkel & Co. Contractors v. Christman Co., 533 N.W.2d 838 (Mich. App. 1995J; Able Demolition v. Pontiac, 739 N.W.2d 696 (Mich. App. 2007); Fixture Specialists, Inc. v. Global Const., LLC, Slip Copy, 2009 WL 904031 (U.S.D.C. D. N.J. 2009).

(18) This does not speak well of the business acumen of the trade contractor since courts have held that contingent payment language must be clear.

(19) See Robert Carney & Adam Cizek, Payment Provisions in Construction Contracts and Construction Trust Fund Statutes: A Fifty State Survey, Construction Law 5 (2004).

(20) In the experience of the author, as a practical matter, subcontractors cannot put in their price any item that will make their price less competitive, with the possible exception of a small general contingency. Finding a cost item in a subcontractor estimate for "financing owner nonpayment" would be rare, and difficult to quantify if actually estimated. Would you estimate a year's worth of interest, assuming that the subcontractor could get a loan?

(21) Vernon's Texas Code Annotated, Bus. & C. [section] 56.053 (2009).

(22) Cox v. CSXIntermodal, Inc., 732 So. 2d 1092 (Fla. 1st DCA 1999); County of Brevard v. Miorelli Engineering, Inc., 703 So. 2d 1049 (Fla. 1997); Gulf American Land Corp. v. Wain, 166 So. 2d 763 (Fla. 3d DCA 1964); Speedway SuperAmerica, LLC v. Tropic Enterprises, Inc., 966 So. 2d 1 (Fla. 2d DCA 2007).

(23) Jones v. H.N.S. Management Co., 883 A.2d 831 (2005).

(24) 74 Am. Jur. 2d, Suretyship [section] 88; Wellington Power Corp. v. CNA Surety Corp., 614 S.E.2d 680 (W.Va. 2005); Fixture Specialists, Inc. v. Global Const., LLC, Slip Copy, 2009 WL 904031 (U.S.D.C. Dist. N.J. 2009); In re Kemper Ins. Cos., 819 NE.2d 491 (Ind. Ct. App. 2004); Wellington Power Corp. v. CNA Sur. Corp., 614 S.E.2d 680 (W.Va. 2005) (public project with a statutory payment bond); Star Contracting Corp. v. Manway Const. Co., Inc., 337 A.2d 669 (Conn. Super. 1973); Wellington Power Corp. v. CNA Surety Corp., 614 S.E.2d 680 (W.Va. 2005).

(25) Culligan Corp. v. Transamerica Ins. Co., 580 F.2d 251 (Ind. App. 1978): U.S. ex rel. Straightline Corp. v. American Casualty Co. of Reading, PA, not reported in F. Supp. 2d, 2007 WL 2050323 (U.S.D.C. N.D.W.Va. 2007).

(26) See 11 C.J.S. Bonds [section] 44.

(27) West Fair Electric Contractors v. Aetna Cas. & Surety Co., 638 N.Y.S.2d 394 (N.Y. 1995); Bonavist v. Inner City Carpentry, Inc., 244 F. Supp. 2d 154 (E.D. N.Y. 2003); Capitol Steel Fabricators, Inc. v. Mega Construction Co., Inc., 68 Cal. Rptr. 2d 672 (Cal. App. 1997).

(28) Also a substitute for lien rights that would exist if the improvements were made to private property. See United States ex rel Walton Tech., Inc. v. Weststar Engineering, Inc., 290 F.3d 1199, 1209 (9th Cir.2002); United States ex rel. McKenney's, Inc. v. Government Tech. Services, LLC, 531 F. Supp. 2d 1375, 1379 (N.D. Ga. 2008); U.S. ex rel. Straightline Corp. v. American Casualty Co. of Reading, PA, not reported in F. Supp. 2d, 2007 WL 2050323 (U.S.D.C. N.D.W. Va. 2007); U.S. ex rel. J.H. Lynch & Sons, Inc. v. Travelers Cas. & Sur. Co. of America, 2011 WL 1532142 (U.S.D.C. Dist. R.I. 2011).

(29) Aetna Cas. & Sur. Co. v. Warren Bros. Co., 355 So. 2d 785 (Fla. 1978); G.E.L. Recycling, Inc. v. Atlantic Environmental, Inc., 821 So. 2d 431 (Fla. 5th DCA 2002).

(30) Team Land Development, Inc. v. Anzac Contractors, Inc., 811 So. 2d 698 (Fla. 3d DCA 2002).

(31) Fla. Stat. [section] 713.245 (originally enacted in 1990, current version modified as of 2001).

(32) Fla. Stat. [section] 713.23 (2005).

(33) Enacted shortly after the Florida Supreme Court decided OBS Co. v. Pace Constr., 558 So. 2d 404 (Fla. 1990).

(34) Fla. Stat. [section] 713.245 (2001).

(35) One situation that has not yet been decided by Florida courts would be when both the subcontract and the payment bond contain the contingent payment obligation. That could not occur in a Fla. Stat. [section] 713.23 bond or [section] 255.05 bond after October 1, 2012.

(36) Fla. Stat. [section] 85.021 (1995).

(37) One issue with this procedure is that there are so many details for compliance that there are frequent missteps. When all the details of the statute are not followed, then the bond is considered an unconditional bond. See North American Specialty Ins. Co. v. Hughes Supply, Inc., 705 So. 2d 616 (Fla. 4th DCA 1998).

(38) E.g., Miami Dade County Code of Ordinances [section] 10-33.02 (2010).

Larry R. Leiby founded and was the first chair of the Construction Law Committee of The Florida Bar Real Property Section. He was a member of the original Florida Bar Construction Law Certification Committee appointed in 2004, later chaired that committee, and was in the first class of Florida Bar board certified construction lawyers in 2005. Leiby is the author of the Florida Construction Law Manual, and has also written the chapters on construction liens, construction bonds, and contracts in The Contractors Manual. He is active as a mediator and arbitrator for JAMS, special master, adjunct professor at Florida International University College of Law, and is of counsel to Malka & Kravitz, P.A.

This column is submitted on behalf of the Real Property, Probate and Trust Section, William F. Belcher, chair, and Kristen Lynch and David Brittain, editors.
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Title Annotation:Florida
Author:Leiby, Larry R.
Publication:Florida Bar Journal
Date:Feb 1, 2013
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