Fundamentals of Construction Contracts in Florida: Essential Construction Contract Terms

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July 26, 2018



There are several different institutions in the design and construction industry that are publishing contracts for design and/or construction.

There are significant differences in the allocation of risks, responsibilities and remedies between the alternative forms in any particular institution publishing standard forms. The American Institute of Architects, for example, has designated forms for small scope of projects and has different forms for fixed price contracts or cost plus contracts. AIA provides alternative forms for different project delivery systems, such as construction management, or design build contracts. It should be noted that the AIA continually updates it contract forms and that in 2007 there are some significant changes in many of the contract forms such as the AIA 201 General Conditions and AIA B141. For those of you who use the electronic version of the AIA documents I am sure you have noted that you can no longer print final versions of many of the older 1997 versions of the contract forms.

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There are also very significant differences between the families of forms being published by the different institutions. Those published by the American Institute of Architects understandably are more favorable in risk allocation to design professionals involved in vertical construction of buildings. The AIA documents are almost never used for construction of bridges, highways or large scale site work.

The Associated General Contractors also claim a “consensus” approval of its family of forms, but it obviously favors its constituency, the larger general contractor. There are many subcontractors and many design professionals who simply will not consider execution of AGC forms.

In addition to those listed above, there is also a family of forms being developed and published by the Construction Owners’ Association of America, Inc. “COAA” which make no pretense at being a “consensus” set of forms. They are very developer oriented and normally would not be considered acceptable, even as a starting point by an experienced contractor, subcontractor, or design professional in dealings and negotiations, because the allocation of risks, responsibilities, rights and remedies varies substantially from that which is typical of the participants in design and construction.

Responsible management do not normally assume risks they cannot measure or that are beyond their experience, and the added risks for the design professional and the contractor expressed in the COAA documents do require careful evaluation, if they are to be utilized as contract documents.

The AIA documents, the AGC documents and the other industry form documents have “evolved” not just for use on new methods of project delivery for construction management or design build, but also to deal with unforeseen treatment of those standard contract documents in cases decided by courts. Because the AIA documents are the most widely used, they also are the most frequently litigated and the subject of comments by courts. That commentary has not always been kind. Lexis publishes an AIA forms citator that identifies cases interpreting the AIA family of forms. The publication is updated annually and can be very useful for legal research in litigation involving AIA documents.

Modification to the standard industry forms is normal, and indeed is facilitated by the forms themselves. There are a wide variety of resources available with suggested alternative language including that published by the American Institute of Architects for its own forms, as well as those that are published by commentators after each new version of standard forms by the AIA, AGC, or EJCDC. There are plenty of articles and seminar materials available advertised in the industries periodicals and distributed by various bar associations at all levels.

It is a copyright violation to retype a copyrighted industry form even if changes are made to the form. There are licenses for generating the standard forms distributed with software that permits the computer printing of the standard forms filled in, with their color, and watermarks. Printed version can be purchased. In addition to filling blank spaces in the standard forms, changes can be made by “Supplemental General Conditions” or “Addendum” that deletes, adds to or modifies the unchangeable text in the electronic format and printed forms. This method of modification reduces surprise and expedites review of contract terms by those familiar with the forms.

A. Incorporation by Reference

In construction contracts, it is common for other documents to be incorporated by reference. Florida courts hold to that incorporate by reference a collateral document the contract must state that it is subject to that incorporated document and the incorporated document must be sufficiently described. In BGT Group v. Tradewinds Engine services, LLC, 62 So.3d 1192 (Fla. 4th DCA 2011) there was a quote, a purchase order and an invoice. Although each of these documents referred to “terms and conditions,” the “terms and conditions” were not provided until after a dispute arose. The trial judge denied the motion to compel based on the arbitration clause in the “terms and conditions” and the Fourth District affirmed.

A court has held when the provisions of the prime contract were incorporated by reference, a venue provision in the general contract was binding on the subcontractor. Druhill Const., Inc. v. RSH Constructors, Inc., 518 So.2d 951 (Fla. 1st DCA 1988). But see Penaranda v. Mills, 98 So.3d 765 (Fla. 5th DCA 2012) (contract which provided the parties “consented” to venue in Duval County permissive not mandatory). If the incorporated term of the general contract, however, conflicts with a specific subcontract provision, then absent some other contractual arrangement, the more specific provision of the subcontract would govern.

In Twin Oaks at Southwood, LLC v. Summit Constructors, Inc., 941 So. 2d 1263 (Fla. 1st DCA 2006), the court dealt with the incorporation by reference issue. The AIA contract with General Conditions. The certificate of occupancy was issued and three months later work continuing on punch list and enter into "project completion agreement". The contractor sued alleging breach of "project completion agreement". The owner counterclaimed for breach of contract. The contractor moved to abate counterclaim for arbitration saying the counterclaim arose from the contract, while original claim was made solely for breach of project completion agreement. The court held the "project completion agreement" incorporates the AIA contract by reference and that the contractor filing suit waived arbitration as to all related claims. See, Glenn B. Wright Constr. V. Cohara, 87 So.3d 1276 (Fla. 4th DCA 2012)(waiver of right to arbitrate by engaging in discovery); see also Speegle Constr. Co. v. Northwest Florida State College, 75 So. 3d 360 (Fla. 1st DCA 2011) (reversing granted stay of arbitration based on unaltered terms of AIA A201-1997 General Conditions even though “Supplemental general Conditions” deleted provisions for arbitration but referred to “1987 edition.”).

B. Scope-of-Work

Generally speaking, a party entering into a contract for construction, in the absence of some other factor, is entitled to have the project built according to the plans and specifications. See Hawaiian Inn of Daytona Beach, Inc. v. Robert Myers Painting, Inc., 363 So.2d 125 (Fla. 1st DCA 1978). Even if the plans do not exist at the time of the execution of the contract, the courts may enforce a scope of work that references those plans. See Doyle Elec. Co. v. Mathews Corp., 263 So.2d 621 (Fla. 2d DCA 1972) (holding that subcontractor was on notice to install telephone conduit and even though no drawings existed at the time the subcontractor entered into the subcontract).

Prior written authorization is sometimes not required when the work is held to be outside the terms of the contract. In Wiggs & Maale Construction Co. v. Stone Flex, Inc., 263 So.2d 607 (Fla. 4th DCA 1972), the court held that a subcontractor's claim for repair work was not barred by the contract that required written authorization for any changes. The court found that the repair work did not arise from a change in the plans and specifications, but rather from the contractor's failure to have the work done according to the plans and specifications. Id. at 608. Frank J. Rooney, Inc. v. Charles W. Ackerman of Florida, Inc., 219 So.2d 110 (Fla. 3d DCA 1969) (holding that arbitration provision incorporated by reference in subcontract was inapplicable to extra work because the extra work was beyond the scope of the subcontract).

C. Right to Stop Work

If the contractor does not receive payment for work performed through no fault of the contractor, then the contractor has the right to stop work. "Failure of Payment" is described in the AIA Document A201-2007, Article 9.7.1 as follows: If the Architect does not issue a Certificate of Payment, through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents the amount certified by the Architect or awarded by arbitration, then the Contractor may, upon seven additional days written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor's reasonable costs of shut-down, delay and start-up, plus interest as provided for in the Contract Documents.

In J.M. Beeson Co. v. Sartori, 553 So.2d 180 (Fla. 4th DCA 1989), the contractor appealed a judgment that awarded compensatory and liquidated damages to owner. The contractor brought suit against the owner for non-payment, and the owner counterclaimed for beach of contract and liquidated damages. The trial court held that the contractor walked off the job without cause and awarded judgment for the owner. The Fourth District reversed the trial court and held that the owner was in breach because the owner had not followed the terms of the contract with respect to payment and the contractor was justified in cessation of work. Id. at 183.Bryan & Sons Corp. v. Klefstad, 237 So.2d 236 (Fla. 4th DCA 1970) (finding that defendants were justified in stopping work because owner failed to make periodic payments for extra work).

D. Payment

1. “Pay when Paid” Clauses

It is not unusual to see “pay when paid” clauses in construction contracts. For these “risk shifting” provisions to be enforced, however, the contract must with “plain and unambiguous” language state that payment by the owner is a “condition precedent” to the contractor paying the subcontractor. See Peacock Constr. Co. v. Modern Air Conditioning, 353 So. 2d 840, 842-43 (Fla. 1977). Even when there is a valid “pay when paid” clause, however, the contractor’s surety cannot assert that clause as a defense unless the bond is also “conditional.” See OBS Co., Inc. v. Pace Constr. Corp., 558 So.2d 404 (Fla. 1990). See also International Engineering Services v. Scherer Construction, 74 So.3d 531 (Fla. 5th DCA 2011) (Pay when paid clause found to be ambiguous and therefor unenforceable).

To further complicate this issue, “conditional payment bonds” are only permitted for private projects. See § 713.245, Fla. Stat. The surety, however, may not be protected by the conditional bond language of § 713.245, Fla. Stat., when the underlying subcontract does not contain a valid “pay when paid” clause. North American Specialty Ins. Co. v. Hughes Supply, Inc., 705 So.2d 616 (Fla. 4th DCA 1998), appeal after remand, 745 So.2d 359 (Fla. 4th DCA 1999) (trial court abused its discretion in denying surety’s motion for leave to amend to assert a statute of limitations defense). Where both the subcontract and the payment bond have clear language conditioning payment by the Contractor on receipt of payment from the owner, then the courts will enforce the notice provisions under § 245, Fla. Stat. See WMS Constr., Inc. v. Palm Springs Mile Associates, Ltd., 762 So.2d 973, (Fla. 3d DCA 2000). See also S. Sobel, “Section 713.245, Conditional Payment Bonds – Panacea or Pandora,” 72 Fla. Bar J. 86 (1998); P. Barthet & N. Goodman, “Waiting to Get Paid: Are “Pay when Paid” Provisions a Matter of When or If?” 73 Fla. Bar J. 64 (1999).

As an additional word of caution in Cool Guys, LLC v. Jomar Properties, LLC, 84 So. 2d 1076 (Fla. 4th DCA 2012), which involved the posting of a Section 713.24 transfer bond during the course of litigation over a construction lien. The lienor had notice of the transfer bond, but did not try to bring a claim on the bond until two years later. Both the trial and appellate court held that the claim was barred by the one year statute of limitations under Section 713.24(4).

2. Delay Damages

Under Florida law, “no damages for delay” clauses are valid in concept. Marriott Corp. v. Dasta Constr. Co., 26 F.3d 1057 (11th Cir. 1994). As a practical matter, however, there are numerous circumstances where the courts have refused to enforce “no damages for delay” clauses. For example, Courts have refused to enforce “no damages for delay clauses” where there is evidence of “fraud, bad faith, or active interference by the owner.” Triple R Paving, Inc. v. Broward County, 774 So.2d 50, 54 (Fla. 4th DCA 2000). This type of case is very specific and fact sensitive. The court will look at the clause and then make a determination as to whether or not to enforce the clause.

When there are delays resulting from fraud, concealment, or active interference or when there is a willful concealment of foreseeable circumstances that will negatively impact the construction project, the “no damages for delay” clause will be limited. Id. at 55; See Newberry Square Dev. Corp. v. Southern Landmark, Inc., 578 So.2d 750 (Fla. 1st DCA 1991) (active interference with the construction was found when the owner delayed in approving plans that needed to be approved before the project could continue and also failed to make timely payments as required by the contract). Refusal to grant adequate time extensions could be considered active interference with the contractor’s work. Mississippi Transportation Comm’n v. SCI, Inc., 717 So.2d 332 (Miss 1998). See United States use of Seminole Sheetmetal Co. v. SCI, Inc., 828 F.2d 671, at 675 (11th Cir. 1987) (despite a no damages for delay clause, the contractor can recover for delay if there was deliberate interference, based on the contracting parties’ implied promise not to hinder the other party’s ability to perform its contractual obligations); Singer v. Etherington, 789 P.2d 108 (Wash. Ct. App. 1990) (in the absence of a liquidated damages clause, the contractor may be liable for the owner's additional financing charges due to the delay). See Grandoff & Davenport, “No Damages for Delay Clauses: A Public Policy Issue,” 75 Fla. Bar J. 8 (Oct. 2001); S. Lesser, “The Great Escape: How to Draft Exculpatory Clauses that Limit or Extinguish Liability,” 75 Fla Bar J. 10 (Nov. 2001); A. Lecysay, “The Collapsing 'No Damages for Delay' Clause in Florida Public Construction Contracts: A Call for Legislative Change, ” 15 St. Thomas L. Rev. 425 (2002).

In United States for the use of Pertun Constr. Co. v. Harvesters Group, Inc., 918 F.2d 915 (11th Cir. 1990), the court applied Florida law to determine the enforceability of a no damages for delay clause precluding a subcontractor’s recovery for acceleration and delay claims where the subcontractor’s agreement to assume the risks of delay and to waive its damages remedy was conditioned upon the prime contractor’s extension of time. The subcontract provided that if the prime contractor delayed the subcontractor’s work, the subcontractor would be granted an extension of time to perform, but that such extension of time would preclude other claims by the subcontractor on account of the delay. The court determined that a close reading of the no damages for delay clause did not simply state that the subcontractor would receive “no damages for delay.” Rather, the subcontractor’s agreement to assume the risks of delay and to waive its damages remedy was specifically conditioned upon the contractor’s extension of time for completion of the subcontractor’s work. The court held that the clause would not operate to preclude Pertun’s recovery for delay and acceleration damages because Pertun’s contractual waiver of his damages remedy was limited by a condition precedent which was neither fulfilled nor excused. Id. at 920. The court found that the timely granting of extensions of time were a condition precedent to enforcement of the no damages for delay clause.

A surety cannot be held liable for delay damages for a contractor’s default unless the bond specifically provides for delay damages on the part of the surety. American Home Assurance Co. v. Larkin General Hospital, Ltd., 593 So.2d 195 (Fla. 1992). Where there was no provision for delay damages, the court erred in including in the award against the surety for defective construction of a university dormitory, an amount for the cost the university would incur for relocating students living in the defectively constructed dormitory while repairs were made. Mycon Construction Corp. v. Board of Regents of the State of Florida, 755 So.2d 154 (Fla. 4th DCA 2000). To the extent of payment bond claims actually paid, the surety's right to any unpaid contract balances is superior to the contractor's liquidated delay damages claim. National Fire Insurance Company of Hartford v. Fortune Construction Company, 320 F.3d 1260, 1276 (11th Cir. 2003).

3. Statutory Payment Bond Claims

Florida Construction Lien Law, Section 713.23, Florida Statutes, provides for a private non-public owner to require a contractor to furnish an unconditional payment bond. Payment bonds are a mechanism to guarantee that all labor and materials contracted for and used by the contractor will be paid for by the surety where the contractor fails to make payment. Payment onds also ensure that all subcontractors and materialmen will be paid. Motor City Electric Co. v. Ohio Casualty Insurance Co., 374 So.2d 1068, 1070 (Fla. 3d DCA 1979) (under certain circumstances, a third party can also recover on a surety bond if the bond was intended for their benefit as well).

Section 713.23(1)(a), Florida Statutes, provides that the bond must be given in at least the amount of the original contract price. Additionally, Section 713.23(1)(a) states that the payment bond must be guaranteed by a surety authorized to do business in Florida, and that the bond will be conditioned upon the contractor making prompt payments for labor, services, or materials to all lienors covered under the direct contract. The posting of a payment bond exempts the owner from direct liability for any liens, except a lien of the contractor who furnishes the bond. Schleifer v. All- Shores Constr. and Supply Co., 260 So. 2d 270 (Fla. 4th DCA 1972). In order to be exempt from the lien law, the owner must attach a copy of the bond to the Notice of Commencement. See Professional Plastering & Stucco v. Bridgeport-Strasberg Joint Venture, 940 So. 2d 444 (Fla. 5th DCA 2006)( court held that for all work done after bond was filed it was a statutory bond, but for claims for work done in the first three months it was a common law bond). The section also requires that the owner, contractor, or surety provide a true copy of the bond to any lienor who requests one. Failing to provide a copy, without justifiable reasons, will be grounds for a separate cause of action for damages.

4. Conditional Payment Bonds

As discussed above, Section 713.23(1)(a), Florida Statutes, provides the requirements for unconditional payment bonds. A contractor can, however, provide for a conditional payment bond, as set forth in Section 713.245(1), Florida Statutes. This section differs materially from the requirements of Section 713.23 because the owner’s property is not exempt from subcontractors' liens. Conditional payment bond cases must be carefully analyzed because the legal relationships are extremely complex. See generally Sobel, “Section 713.245 Conditional Payment Bonds- Panacea or Pandora?” 72 Fla. Bar J. 86 (October 1986); North American Specialty Insurance Co. v. Hughes Supply, Inc., 705 So.2d 616, 618 (Fla. 4th 1998); North American Specialty Insurance Co. v. Bergeron Land Development, Inc., 745 So. 2d 359 (Fla. 4th DCA 1999). In order for a bond to be considered a conditional payment bond, some requirements must be met. First, the bond must be recorded with the notice of commencement as a conditional payment bond and must be listed in the notice of commencement as a conditional payment bond. Second, the words “conditional payment bond” must be contained in the title of the bond at the top of the front page. The front page of the bond must also contain the following, in at least 10-point type:


Another requirement for the bond to be considered “conditional” is that the contractor’s written obligation to pay the subcontractor or other potential bond claimant must be expressly limited to payments made by the owner to the general contractor. WMS Constr. Inc. v. Palm Springs Mile Associates, Ltd., 762 So.2d 973 (Fla. 3d DCA 2000). If the bond does not contain the appropriate language, then the bond may be considered a statutory bond under Section 713.23, Florida Statutes.

Actions on a valid conditional payment bond must be initiated against the contractor or the surety within one year from the date the lien is transferred to the conditional payment bond, under Section 713.245(2), Florida Statutes.

Under the statute, a surety’s liability is coextensive with the general contractor’s liability, and the surety will be liable to the same extent as the general contractor. North American Specialty Ins. Co. v. Hughes Supply, Inc., 705 So.2d 616, 618 (Fla. 4th 1998). If the contractor does not have a valid “pay when paid” clause in the contract, then neither the surety nor the contractor can invoke the “pay when paid” defense, and the bond is considered a statutory bond under Section 713.23, Florida Statutes. As a word of caution, if you are in doubt give notices under both Section 713.23 and Section 713.245 because the court stated in North American Specialty Ins. Co., that a mistaken belief that the bond was a Section 713.245 conditional payment bond will not excuse the failure to properly perfect the claim under the normal private statutory bonds posted under Section 713.23.

Unlike Section 713.23, Section 713.245 provides that the surety’s duty is contingent on that of the contractor where there is a valid “pay when paid” clause. The “pay when paid” clauses therefore, limit the surety’s liability to only payments actually made by the owner. WMS Constr., Inc. v. Palm Springs Mile Associates, Ltd., 762 So.2d 973, 976 (Fla. 3d DCA 2000). Interestingly, as the WMS Construction case illustrates, now owners attempting to avoid liens are attempting (and in that case unsuccessfully) to convert conditional payment bonds into unconditional payment bonds using the same arguments that subcontractors and materialmen have used.

5. Common Law Bond Claims

Common law bond principles still apply in Florida in both private contracting as well as with subcontractor payment bonds. With respect to public projects, the Florida Supreme Court in American Home Assurance v. Plaza Materials Corp., 908 So. 2d 360 (Fla. 2005), held that though the payment provisions of bonds recorded pursuant to Section 255.05(2) would be deemed statutory bonds regardless of form and subject to all of the requirements of Section 255.05. The Court did note, however, that a surety issuing a bond that fails to include the information required by Section 255.05(6) may be estopped from asserting notice defenses against claimants where the claimants did not know about providing the required notice.1 See also Professional Plastering & Stucco v. Bridgeport-Strasberg Joint Venture, 940 So. 2d 444 (Fla. 5th DCA 2006)( court held that for all work done after bond was filed it was a statutory bond, but for claims for work done in the first three months it was a common law bond).

Making the distinction between statutory and common law bonds is important in order to determine the applicable statute of limitations. Common law bonds have a statute of limitations of four years under Section 95.11, Florida Statutes, whereas statutory bonds have only a oneyear

statute of limitations. Florida Keys, 456 So.2d at 1253. Either way, the statute of limitations will begin to run the day the last performance of labor was completed. School Bd. of Desoto County v. Safeco Ins. Co., 434 So. 2d 38 (Fla. 2d DCA 1983). Also, of interest on the statute of limitations, is the Florida Supreme Court’s recent decision holding that the statute of limitations applies in arbitrations. See Raymond James Financial Services, Inc. v. Phillips, 2013 Fla. LEXIS 977 Fla. 2013).

In Everett Painting Company, Inc. v. Padula & Wadsworth Construction, Inc., 856 So.2d 1059 (Fla. 4th DCA 2003), the Fourth District Court of Appeal stated that "even if it [payment bond] did contain the language in Section 713.245, surety did not have the ability to create a conditional payment bond because the bond in the instant case was issued pursuant to Section 255.05 and there are not provisions in Section 255.05 similar to those in Section 713.245." The Fourth District Court went on to state that, "the purpose of Section 255.05 is to protect subcontractors and suppliers by providing them with an alternative remedy to mechanic's liens on public projects."

If there is a question due to an ambiguity in the bond, the ambiguity must be construed in favor of granting the broadest possible coverage to the intended beneficiary. Motor City Electric Co. v. Ohio Casualty Insurance Co., 374 So.2d 1068, 1069 (Fla. 3d DCA 1979). Along these same lines, courts will strictly construe bonds against the drafting bonding company. Travelers Indemnity Co. v. Housing Authority of City of Miami, 256 So.2d 230 (Fla. 3d DCA 1972). 17

The Florida Supreme Court also rendered an interesting case involved surety bad faith claims in Dadeland Depot, Inc. v. St. Paul Fire & Marine, Ins. Co., 945 So. 2d 1216 (Fla. 2006). The Florida Supreme Court held that surety is insurer for purposes of § 624.155 claim of bad faith failure to settle and can be liable for damages under statute despite contractual damage limitation. But legislature amended statute to specifically exclude sureties. For pending cases could still be claim against surety for bad faith.

6. Section 715.12, Private Prompt Payment Act

Section 715.12(2), Florida Statutes, governs prompt payment in private construction contracts. The contracts must be in writing, must be for the improvement of real property, must have been entered into after December 31, 1992, and must be authorized for a construction lien under Chapter 713. According to Florida Statutes, Section 715.12(4), the obligor (owner, contractor, subcontractor, or sub-subcontractor) must pay the party with whom it has a direct contract when all of the following events have occurred: (1) the obligee has furnished obligor with a written request for payment pursuant to the terms of the contract between the parties; (2) the contractor, subcontractor or sub-subcontractor has been paid by the owner for the services provided by obligee; and (3) all affidavits or waivers have been furnished as required for the owner to make proper payment. Payments due under this section bear interest at the rate specified in Section 55.03, Florida Statutes, and the interest begins accruing on the 14th day after payment was due under subsection (4). If the request for payment under subsection (4) is incomplete or deficient in some way, the person receiving the notice has 14 days within which to return the notice for completion or correction. If the notice is not returned, then interest must be paid as provided for in Section 715.12(5)(a), Florida Statutes.

This section does not call for the right to collect interest as an exclusive remedy and does not create a separate cause of action other than for the collection of interest. Sections 715.12(6)(a) & (b), Florida Statutes. The right to receive interest cannot be waived before payment is due. Interest can only be collected under the contract amount or the statutory amount, whichever is greater, but cannot be collected under both the contract and the statute. If there are any disputes as to payment, payment must still be made as to any portions of the work that are not under dispute.

Section 715.12(7) states that a contractor and an owner may enter into an agreement whereby the owner will withhold a portion of the progress payments until the project is substantially completed. The balance of the contract price must be paid though within 14 days of any of the following events: (1) an architect or engineer certifies that the project is substantially complete; (2) a certificate of occupancy is issued; or (3) the owner takes possession. All three of the above conditions also require an owner to provide to contractor a written punch list within the time required by the contract and the contractor to substantially complete the items on the punch list. Any funds wrongfully withheld after the occurrence of one of these items will bear interest as specified in subsection (5).

Another section of the statutes that deals with prompt payment is Section 713.346, Florida Statutes. This section provides that any person who receives payment for permanent improvements to real property must pay the undisputed contract obligations for labor, services, or materials provided for those improvements. The failure to pay for these items (1) within 30 days after the payment becomes due for the furnishing of the labor, supplies, or materials, or (2) within 30 days from the date that the payment for the labor, services, or materials is received, 19 whichever occurs last, allows the person providing the labor, supplies, or materials to file a verified complaint. The complaint must allege: (1) the existence of the contract to improve the real property; (2) a description of the labor or materials provided and that the items were provided in accordance with the contract terms; (3) the amount of the contract price; (4) the amount, if any, paid pursuant to the contract; (5) the amount that remains unpaid, and of that amount, what portion is undisputed; (6) the undisputed amount has remained unpaid for more than 30 days after the date the labor or material was accepted; and (7) the person against whom the complaint was filed received payment for the labor or materials more than 30 days prior to the date the complaint was filed. Not less than 15 days after service of the complaint, the court conducts an evidentiary hearing. Upon proof of each allegation of the complaint, the person who provided the labor or materials is entitled to the following remedies: (1) an accounting of the use of any payment by the person who received the payment; (2) a temporary injunction against the person who received the payment; (3) prejudgment attachment against the person who received the payment; and (4) any other legal or equitable remedy that the court deems appropriate. In addition, the 2001 Legislature amended the statute to provide that the prevailing party in this type of action is entitled to recover costs, including reasonable attorneys’ fees.

7. Sections 218.70-.80 and 255.071, Public Prompt Payment Act

The Florida Local Government Prompt Payment Act governs for local government public construction projects. Section 218.71 states the purpose and policy behind the recently renamed Local Government Prompt Payment Act for public construction projects. The purpose is to provide for (1) prompt payment by local governmental entities, (2) interest on any late payments made by local government, and (3) dispute resolution for payment obligations. Section 218.71(2) states that payment for “all purchases made by local governmental entities be made in a timely manner.”

Section 218.735(1) provides the due date for construction services given to local government bodies as follows: (1) if an agent must approve the payment request or invoice prior to sending the invoice to the government agency, then payment will be due 25 business days after the date the request was stamped received; or (2) if an independent agent does not have to approve the invoice or request, then payment will be due 20 business days after the request is stamped received. The local government entity can choose to reject the invoice but it must give a written rejection within 20 business days after it is stamped received, and the rejection must state the reasons for the deficiency and the actions necessary to correct the deficiency. Once the payment has been rejected, the contractor can submit a corrected invoice or payment request. The corrected invoice or payment request must either be paid or rejected on the later of: (1) ten business days after the request was stamped as received; or (2) “if the governing body is required by ordinance, charter, or other law to approve or reject the corrected payment request or invoice, the first business day after the next regularly scheduled meeting of the governing body held after the corrected payment request or invoice is stamped as received.”

Disputes regarding payment must be resolved in accordance with the procedure described in the construction contract or if no procedure is described, then the statutory procedure in Section 218.76(2) must be utilized. If only a portion of the payment is disputed, then the governmental entity must timely pay the undisputed portion. Section 218.735(5) Any payments due under this Section that are not made within the specified time limits will bear interest at the rate of one percent per month, or the rate specified in the contract, whichever is greater. Section 218.735(9).

The resolution procedures for disputes are laid out in Section 218.76. Section 218.76(1) requires that if a local governmental agency receives an improper payment request or invoice, the agency must notify the contractor that the notice was improper and the reason why, within 10 days of receiving the notice. Section 218.76(2) states that each government agency must establish their own procedures for dispute resolution and must abide by those procedures in cases of disputes. There are certain guidelines that the procedure must follow, including that the dispute procedure must begin within 45 days of the agency receiving the proper payment request and that the procedure must be completed within 60 days of receiving the proper payment request. The section also provides for interest payments depending on the prevailing party. If the local governmental entity prevails, interest charges begin to accrue 15 days after the final decision. If the vendor is the prevailing party, interest begins to accrue as of the original date payment was due. In any action that must be resolved by litigation, the court “shall award court costs and reasonable attorney’s fees” to the prevailing party, if the non-prevailing party unreasonably withheld funds without any basis in law or in fact.

In 2005 the Legislature added provisions dealing with punch lists, retainage and payment to subcontractors. For all contracts signed or advertised after October 1, 2005, the contract must have a procedure for establishing a punch list. If there is a dispute about whether a punch list item has been completed, then the government can withhold an amount equal to 150% of the total cost to complete the item. Section 218.735. Once projects reach 50% completion then the local government “must” reduce to 5% the amount of retainage withheld from each payment made thereafter to the contractor. Generally, the contractor after 50% completion must thereafter also reduce the rate of retainage, unless the contractor notifies the subcontractor of its intention to withhold more than 5% retainage, the reasons for making that determination and the contractor may not request a release of that retainage from the local government. The Florida Prompt Payment Act, Section 255.0705, Florida Statutes, deals with the payment of subcontractors, subsubcontractors, materialmen, and suppliers on construction contracts for state, county and city public projects. Section 255.071 generally provides that contractors must pay undisputed amounts, must be paid after the contractor has received the funds from the government, and within 30 days when payment is due under the subcontract or purchase. Section 255.071(4) provides for an expedited court process for claims and Section 255.071 (7) provides that the prevailing party in any proceeding under this section is entitled to recover costs, including reasonable attorney's fees.2

E. Exculpatory Clauses

Limitations on the amount of liability for particular kinds of risks, or total exculpation of liability with regard to particular risks may be enforced according to terms, subject to several exceptions. In contracts involving design professionals in some jurisdictions, courts may not enforce limitations on liability. In transactions in which there is a substantial difference in bargaining power, overreaching, or contracts of adhesion, courts might not enforce exculpatory clauses. Where the exculpatory clause in effect destroys the corresponding consideration of a party, the court might treat the contract as a whole as unenforceable because there is no mutual obligation to provide consideration. Even when the limitation on liability has a reasonable sum defined, and is otherwise enforceable, courts may decline to enforce the limitation on liability under the same circumstances that the court would deny enforcement of a “no damage for delay” clause.

F. Construction Notice Provisions

Requirements for notice can arise by statute or by contract. The following discussions deal with various statutory notice provisions.

Notice of Commencement

According to Section 713.13(1)(a), Florida Statutes, which was amended in 2011, before the initiation of any construction to improve real property, a private owner or his authorized agent must record a notice of commencement in the clerk’s office of the county where the real property is located and also post a certified copy of the notice of commencement at the site of the improvements. See attached form. Any payment bond on the project must be attached to the notice of commencement when it is recorded, Section 713.13(1)(e), Florida Statutes. The Notice becomes effective on the date it was recorded in the clerk’s office. The Notice of Commencement must contain the following information in order to be valid:

1. Legal Description. A legal description of the real property, sufficient enough to identify it, and a street address, if available, and tax folio number. If there is no street address available, the description should be sufficient to locate the physical location of the real property. The construction permit number should be included, as well as the tax folio number(s).

2. General Description. A general description of the improvement(s) to be made on the property.

3. Owner and Owner’s Interest or Lessee’s Interest. The name and address of the owner or lessee, the owner’s interest in the site of the improvement, and if different than the owner, the name and address of the fee simple title holder.
4. Contractor. The name, address, and telephone number of the contractor.

5. Surety and Amount of Bond. If there is a payment bond, then the name, address and phone number of the surety on the bond and the amount of the bond. The payment bond should also be attached to the Notice of Commencement at the time of recording.
6. Lender. The name, address, and telephone number of any person providing a loan for the improvements to the real property.

7. Designated Agent. The name, address, and telephone number of any person within the State of Florida, other than the owner, who may also be designated to receive documents or notices.

8. Expiration Date. The expiration date of the Notice, which will be one year from the date the Notice was recorded, unless otherwise specified.

9. Signature. The notarized signature of the owner or Owner’s authorized Officer/Direct/Partner/Manager. No other person can sign the Notice in place of the owner. A warning was added to the form in 2007 as well as verification clause.

10. Person who Prepared. The name and address of the person who prepared the Notice. Substantial compliance is necessary in order to protect both the lienor and the owner. The notice of commencement must be in substantially the same form as that provided for in the statute, Section 713.13(1)(d), Florida Statutes, so that it will provide the lienor with all the necessary information needed to serve a notice to owner (or if there is a payment bond, then the “notice to contractor”). The lienor is entitled to rely on the information contained in the Notice of Commencement as being correct. Sasso Air Conditioning, Inc. v. United Companies Lending Corp., 742 So.2d 468 (Fla. 4th DCA 1999). In 2007 the Legislature also expressly provided that a Notice of Commencement can be amended as long as notice is given to any party who has served a notice to owner as well as notice to the contractor. Contractors are not required to conduct a title search to ensure that all the information contained in the notice of commencement is correct.

If the improvement cited in the notice of commencement has not actually been started within 90 days of the filing, then the notice of commencement is void. Section 713.13(2), Florida Statutes. Recording a Notice of Commencement does not constitute a lien or encumbrance on the property but merely gives notice that claims of lien may be recorded and may take priority as provided in Section 713.07. Section 713.13(3), Florida Statutes. In addition, the lender before disbursing any funds must record the notice of commencement, Section 713.13(6) and the owner also has this duty, as well as posting a certified copy of the notice of commencement on the jobsite. Section 713.13(1) The government authority issuing the permit is also required to provide a warning concerning the lien laws. Section 713.135 provides:

(1) When any person applies for a building permit, the authority issuing such permit shall . . . :

(b) Provide the applicant and the owner of the real property upon which improvements are to be constructed with a printed statement stating that the right, title, and interest of the person who has contracted for the improvement may be subject to attachment under the Construction Lien Law. The Department of Business and Professional Regulation shall furnish, for distribution, the statement described in this paragraph, and the statement must be a summary of the Construction Lien Law and must include an explanation of the provisions of the Construction Lien Law relating to the recording, and the posting of copies, of notices of commencement and a statement encouraging the owner to record a notice of commencement and post a copy of the notice of commencement in accordance with Section 713.13. The statement must also contain an explanation of the owner's rights if a lienor fails to furnish the owner with a notice as provided in Section 713.06(2) and an explanation of the owner's rights as provided in Section 713.22. The authority that issues the building permit must obtain from the Department of Business and Professional Regulation the statement required by this paragraph and must mail that statement to any owner making improvements to real property consisting of a single or multiple family dwelling up to and including 4 units. However, the failure by the authorities to provide the summary does not subject the issuing authority to liability.

(c) In addition to providing the owner with the statement as required by paragraph (b), inform each applicant who is not the person whose right, title, and interest is subject to attachment that, as a condition to the issuance of a building permit, the applicant must promise in good faith that the statement will be delivered to the person whose property is subject to attachment.

Unfortunately for owners, Section 713.135(3) expressly states that the government authority is not liable in damages for failure to ensure that the notice of commencement has been properly filed.

Notice to Owner and Notice to Contractor on Private Projects

Section 713.06, requires that the Notice to Owner must contain the following warning (See attached Notice to Owner3).


Where the contractor provides a payment bond on a private project, Section 713.23(1)(c) requires any lienor not in privity with the contractor to serve the contractor with a written notice within 45 days after beginning to furnish labor or materials that it will look to the contractor’s bond for protection. Section 713.23(1) also provides a form for the notice.

Notice to Contractor and Notice of Nonpayment on Public Projects

Section 255.05(2)(a)(2), Florida Statutes, states that any claimant, except a laborer, who is not in privity with the contractor shall, before commencing or no later than 45 days after commencing to provide labor, materials, or supplies, furnish the contractor with a notice that they intend to look to the bond for protection. The 45 days begins to run after the first furnishing of labor, services, or materials, not within the first 45 days that payment is due. Haskell Co. v. Peeples Construction Co., 648 So.2d 833 (Fla. 1st DCA 1995).

The notice must specifically state that the subcontractor or supplier is specifically looking to the bond for protection. School Board of Palm Beach County for the Use and Benefit of Major Electrical Supplies of Stuart, Inc. v. Vincent J. Fasano, Inc., 417 So.2d 1063, 1065 (Fla. 4th DCA 1982). The court determines if the notice requirements were met on a case by case basis. Blosam Contractors, Inc. v. Joyce, 451 So.2d 545 (Fla. 2d DCA 1984)(even though the notice was addressed to the corporation itself, the notice was valid because it was eventually received by Blosam’s comptroller and it had been posted at the work site).

Any subcontractor or supplier who has not received payment for their services must give written notification of the performance and of the non-payment to the contractor and to the surety. The Notice of Nonpayment can be served any time but no later than 90 days after the last furnishing of labor, supplies, or materials, and no action can be instituted against the contractor or the surety unless both the Notice to Contractor for claimants who are not in privity and the Notice of Non-payment are timely served. In 2005, the Legislature added a requirement that the Notice of Non-payment must specify the portion of the amount claimed for retainage. Giving prompt notice is extremely important, and courts will reject claims if prompt notice is not given.

An action, except an action exclusively for recovery of retainage, must be instituted against the contractor or the surety on the payment bond within one year after the performance of the labor or completion of the delivery of the supplies or materials. Subcontractors on public works projects may not lawfully waive their rights to the contractor’s bond under Section 255.05. American Casualty Co. v. Coastal Caisson Drill Co., 542 So.2d 957 (Fla. 1989).

Contractor's Final Payment Affidavit

Section 713.06 requires that the contractor on private projects give to owner a final payment affidavit. See attached Contractor's Final Payment Affidavit.

G. Warranties

Warranties can either be express or implied. An express warranty is one that is expressly stated in the contract, whereby one party stipulates that certain facts or circumstances are true, subject to any exclusions or limitations. See Black’s Law Dictionary. An implied warranty exists through operation of law and it derives through implication or inference from the nature of the transaction or the circumstances surrounding the transaction. See Black’s Law Dictionary. In certain instances, a party may wish to disclaim warranties, both express and implied.

There are certain requirements that must be met in order to have an effective disclaimer. In order to be effective, a warranty disclaimer must be brought to the attention of the buyer at the time of the contract. Any attempted limitation at some later date, long after the contract is signed, does not accomplish this purpose, as it is a unilateral attempt of the seller to limit its implied obligations.

When an action that has already occurred is used in exchange for a promise, it may not be used as consideration to form another agreement. E. Allen Farnsworth, Contracts, § 2.6 (3d ed. Aspen L. & Bus. 1999). If this “past consideration” is used in a present context, courts have historically refused to enforce the agreement because the party that has already performed will not incur any new detriment. Id. This is the position a Texas court took in Stone v. Morrison & Powers, 298 S.W. 538, 539 (Tex. Civ. App. 1927). In Stone, the court stated, “a supplemental contract whereby a new or additional obligation is assumed must likewise be supported by a consideration for such a supplemental agreement is nevertheless a contract itself.” Id. Florida has also adopted the Uniform Commercial Code. Hi Neighbor Enterprises, Inc. v. Burroughs Corp., 492 F.Supp. 823, 826 (N.D. Fla. 1980). The statutes create both implied warranties of merchantability and fitness for a particular use, but under some circumstances, a seller may exclude or modify the warranties if certain requirements are met. Id. Under Fla. Stat. § 672.316(2), the critical requirement for language excluding or modifying warranties of merchantability or fitness is that it be “conspicuous.” Any inconspicuous language that attempts to limit these warranties will fail in its intended purpose. Id. The court, not the jury, makes the determination as to whether a term is conspicuous or not. See Monsanto Agricultural Products Co. v. Edenfield, 426 So.2d 574, 578 (Fla. 1st DCA 1983).

When evaluating whether a disclaimer is conspicuous, a court will look at several factors, including the size, style, and color of the text, and whether the disclaimer was placed among a “myriad of other provisions.” Bert Smith Oldsmobile, Inc. v. Franklin, 400 So.2d 1235, 1237 (Fla. 2d DCA 1981). Additionally, in Prince v. Paretti Pontiac Co., Inc., 281 So.2d 112, 117 (La. 1973), the Louisiana Supreme Court considered the additional requirement that in order to be

conspicuous, the disclaimer had to either be called to the reader’s attention or explained to him. Under Fla. Stat. § 672.316(2), the critical requirement for language excluding or disclaiming warranties of merchantability or fitness is that the language be “conspicuous.” Any language that is not conspicuous and does not meet the requirements will fail in its purpose.

In the absence of an express warranty, a contractor is supplying services and therefore is not a merchant liable for latent defects in goods. See Jackson v. L.A.W. Contracting Corp., 481 So.2d 1290 (Fla. 5th DCA 1986), rev. denied, 492 So.2d 1333 (1986). L.A.W., a contractor, repaired, recoated, and restripped a private road under a contract with the owner of the land. Id. at 1291. The Jacksons were injured when their vehicle skidded on the resurfaced road. Id. They brought claims for negligence, strict liability, and breach of implied warranty of merchantability against L.A.W. Id. The trial court entered summary judgment in favor of the contractor on the issue of breach of implied warranty of merchantability because this was not a contract for the sale of goods or other products by a merchant. Id. Instead, this was a contract for the repair of an owner’s private road. Id. The contractor’s work was therefore not a transaction within the meaning of Fla. Stat. § 672.312, which provides a cause of action for breach of implied warranty of merchantability. Id. At 1292. The appellate court upheld the trial court’s ruling on this issue. Id.; See also Arvida Corp. v. A.J. Industries, Inc., 370 So.2d 809 (Fla. 4th DCA 1979) (the court holding that contractor’s work does not fall under Fla. Stat. § 672.314, which provides a cause of action for breach of implied warranty of merchantability for goods sold by a merchant).

Implied warranties of fitness and merchantability now extend to the purchase of new condominiums in Florida from builders. See Gable v. Silver, 258 So.2d 11 (Fla. 4th DCA 1972). The builder installed defective air conditioning units in all of the new condominiums it built and sold. Id. at 12. The builder’s contract with the buyers included an express warranty that was valid for only one year from the date of the new condo purchase. Id. The court stated that the inclusion of the express warranty in the contract did not preclude the buyers from bringing their claim and that the express warranty was also consistent with the implied warranties of fitness and merchantability. Id. at 13. The court noted that express warranties do not generally negate the implied warranties of fitness and merchantability. Id. Since the court determined that the air conditioning units became part of the realty based on the intention to make them a permanent part of the structure, the suit was a proper cause of action. Id. at 14.

The Legislature after Gable, created special statutory warranties for developer, contractors and certain subcontractors. Section 718.203 generally provides a 3 year warranty from the developer for each unit owner, as well as for common elements such as the roof, structural components, and mechanical, electrical and plumbing elements. Contractors and subcontractors provide a similar (though not identical) 3 year warranty for roof, structural components, and mechanical and plumbing elements.

In Maronda Homes v. Lakeview Reserve Homeowners Ass. 2013 Fla. LEXIS 255 (Fla. 2013), the Florida Supreme Court affirmed an earlier Fifth District decision and held that the Gable implied warranties extended to structures in subdivision common areas that provided services essential to habitability of the homes. The Court also addressed issues raised by the Legislature’s attempts in 2012 through Section 553.835 to abolish these implied warranties and held that statue did not apply to a cause of action that accrued prior to its effective date.

An additional method of protecting owners is to have the contractor assign all UCC warranty rights from sellers and manufacturers. See Ashley Square, Ltd. v. Contractors Supply of Orlando, Inc., 532 So.2d 710 (Fla. 5th DCA 1988). In Ashley Square, the owner entered into a subcontract agreement with Acrylic Stucco Applicators, who then purchased the materials it needed from the defendants. Id. at 711. Defects soon began to appear in the stucco where the subcontractor had applied the defendant’s materials. Id. The plaintiff brought a claim for breach of implied warranty of merchantability and the trial court entered summary judgment in the defendant’s favor. Id. The appellate court reversed because an implied warranty of merchantability did exist pursuant to Fla. Stat. § 672.314, even though the plaintiff and defendant were seemingly not in privity of contract. Id. The court did say that causes of action for breach of implied warranty of merchantability and fitness for a particular purpose no longer exist in Florida in the absence of privity. Id. The plaintiff took on whatever rights the subcontractor held and since the subcontractor had a cause of action for breach of implied warranty, the plaintiff now possessed that cause of action. Id. at 712. See also CC Aventura Inc. v. The Weitz Co., LLC, 2007 US Dist. Lexis 31841 (SD Fla. May 1, 2007) (complaint stated a claim for breach of warranty against subcontractors despite lack of privity because the allegations supported a third party beneficiary claim).

H. Termination

Termination or the threat of termination is a very serious matter. Unfortunately for many in the construction industry, the termination decision is often made without the reflection that it deserves and is based on the emotion of the moment. Many times the decision is made by project personnel without either any legal advice or the involvement by more seasoned and senior management. Whether you are involved as an owner, contractor, subcontractor or supplier, all parties to the process would be well served by having checks and systems in place that require both senior management and legal counsel to be involved before the decision is made to either terminate or threaten to terminate.

The first place to look when the issue of termination arises is the contract. Again, this may seem to be obvious, but many times the decision to threaten to terminate or to actually terminate is often made without consulting the contractual documents, the specifications, and any conditions that may be incorporated by reference. In addition to looking at the contract, the termination decision many times requires the review of other documents and an analysis of the rights and responsibilities of parties beyond those immediately involved, such as bonding companies and lienors under the Florida construction lien law.

Many of the standard industry contracts, such as the American Institute of Architects form of Owner Contractor A201 General Conditions outline the procedures for termination by both the contractor and the owner. The contractor may terminate the contract if work is stopped for 30 or more days for any of the following reasons: (1) an order of court or other public authority requiring work to be stopped; (2) any act of government requiring work to be stopped; (3) the failure of the architect to issue a certificate for payment without giving a reason why; and/or (4) the owner’s failure to give the contractor credible evidence showing enough financial resources to finish the project. AIA Document A201-2007, Article 14.1.1. If the contractor follows these steps (and is right), the contractor may, upon seven days’ written notice to the owner and architect terminate the contract and recover for work performed, losses, including reasonable profit, overhead and damages. AIA Document A201-2007, Article 14.1.3. The owner ”upon certification by the Initial Decision maker” ( a new role or function incorporated into the 2007 edition) may terminate the contract for cause if any of the following events occur: (1) the contractor repeatedly refuses or fails to supply enough skilled laborers or proper materials to complete the project; (2) the contractor fails to make payments to any of the subcontractors according to the terms of their contracts; (3) the contractor continually ignores laws, ordinances, or rules of the jurisdiction where the project is being performed; and/or (4) the contractor has substantially breached any part of the contract. AIA Document A201-2007, Article 14.2.1. If any of these events occur, then the owner may terminate the contract, giving at least seven day’s written notice to the contractor and the contractor’s surety, and: (1) take possession of the site and all the contractor’s materials or equipment; (2) accept assignment of subcontracts; and (3) complete the work by any reasonable method, and provide the contractor with a detailed list of all costs incurred in completing the project. AIA Document A201-2007, Article 14.2.2. If the owner follows these steps (and is right), then the owner will not have to pay the contractor for any work done until the project is completed.4

One of the advantages of using industry standard contracts is that there is a fairly significant body of law interpreting the provisions. See The American Institute of Architects Legal Citator (2011). For example, in Blaine Economic Dev. Auth. v.. Royal Elec. Co., 520 N.W. 2d 473 (Minn. Ct. App. 1994), the issue involved the AIA Document A201-1987 version of article 14.2.2 which also had the requirement for seven days’ written notice that remains in the 2007 edition. The court held that the contractor’s duty to “commence and continue correction” only arose “after receipt of written notice” and therefore the owner had no right to terminate until it had first given the notice. The court struggled with the fact that Article 14.2.2 does not state what the written notice had to include. The court concluded that the owner’s written notice to cure needed to describe the inadequate performance and had to fairly advise the contractor that if it failed to adequately cure, then the owner would terminate the contract.

Termination may also have implications for arbitration. For example, in Auchter Co. v. Zagloui, 949 So. 2d 1189 (Fla. 1st DCA 2007), the Court held that arbitration was required under AIA contract with General Conditions even though contract was terminated prior to suit and contract did not have savings clause on arbitration provision continuing in effect posttermination.5 The party who terminates has the burden to justify and support the termination. See Ranger Constr. Co. v. Prince William County School Board, 605 F.2d 1298, 1305 (4th Cir. 1979). The question of reasonableness i

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