Slow payment in the construction industry is a cold, harsh reality. In fact, less than 10% of contractors are actually paid on time by their customers. This number could be far worse if not for state prompt payment acts.
Practically every state has some version of a prompt pay statute, with varying applicability and requirements. Florida’s Prompt Payment Act offers strong protections for timely payments on construction projects.
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Florida Prompt Payment Act
The Florida Prompt Payment Act is a bit convoluted, as it is spread across three separate statutes. Florida’s prompt payment provisions distinguish between private jobs, state government projects, and local government projects.
We are going to break this post down into public and private jobs and attempt to simplify this the best we can.
For a quick overview:
This is where the Florida statutes get a little more complicated. As mentioned earlier, there are two different statutes that govern prompt payment on public projects. State projects are subject to The Florida Prompt Payment Act, which is under Chapter 255, §§0705-078. While local public jobs are subject to Part IV of Chapter 218 entitled the Local Government Prompt Payment Act.
*Note that projects contracted by the Florida Dept. of Transportation are expressly excluded from these provisions.
The following sections will be broken down into state and local projects, which will each be broken down by payments from the government agency (owner) to the direct contractor, and then payments from direct contractors to subs and suppliers. Stay with me here; this will all make sense soon.
State public projects
Timing of payments
Government entity to prime contractors
Let’s start at the top, with payment coming directly from the contracting government entity to the prime contractor. Once a pay application is sent to the contracting agency, the request must be submitted to the payment officer within 20 days of receiving the pay application. Upon receipt, the payment officer should conduct an inspection and subsequently approve or deny the payment request within 10 days.
Prime contractors to subs and suppliers
Lower tier parties such as subs and suppliers are entitled to receive payment once all the required lien waivers have been submitted along with a proper pay application.
Before anything, the prime contractor must have been paid by the state agency. Once that payment has been received, the prime must release undisputed payments within 30 days after the labor or materials were provided, or 10 days from receipt of payment from the owner; whichever is later.
The rules of retainage on state-funded construction projects are the same for both payments from the contracting agency to the prime, and the prime to the subcontractors. The paying party may withhold retainage up to 10% of the progress payments until the contract reaches 50% of completion. At this point, the retainage rate should be reduced to 5% of each progress payment.
There are some circumstances where an entity or prime can withhold more than 5% from each progress payment. This can only be done on a case-by-case basis, and only with written notice to the party expecting payment outlining the reasons for the increase in retainage. Once the 50% completion mark has been reached, contractors can elect to submit a request to the public entity for 1/2 of the withheld retainage.
When nearing the end of the project and the punch list item tasks have been completed, the contractor can submit a request for the remaining retainage. The funds will be paid in accordance with the same timing as any other payments and it will be paid according to the same timeframes as any other payment under this chapter.
Withholding payment longer
If the state agency or the prime decides to withhold payment past the due date, then there must be a good faith dispute over the amount or the quality of the labor or materials provided. However, if the money is withheld unjustifiably, then interest will begin accruing at a rate of 1% a month until payment is made.
Local public projects
Timing of payments
Payments from the agency to the prime contractor
Once a contractor submitted a pay application, alongside any requisite lien waivers, they will be entitled to payment. When the local government entity receives the pay application, payment should be released within 20 days. If, however, the work must be approved, the agency has 25 days for payment.
Payments from the prime contractor to subcontractors
Next, subcontractors and suppliers will be entitled to payment once a proper pay application is submitted. Once the pay request has been received by the prime contractor, they are required to pass the project funds on to their subs and suppliers within 10 days of receipt.
Conversely, once a sub has received their payment they must pay out their subs and suppliers within 7 days; and so on down the chain if there are multiple tiers on the project.
Any paying party may elect to withhold payment longer than required by statute if they decide there is a good faith dispute as to the payments. If so, the expecting party must be notified in writing and the measures that need to be taken to resolve the dispute.
If the funds are withheld and there is either no good faith dispute, or failure to provide notice, then the amount will accrue interest at either 1% or the rate set out in the contract terms; whichever is greater.
The same retainage rules for state and local government projects are relatively identical. There is one exception for local public projects. If the municipality has a population of 25,000 or fewer, or the county has a population of 100,000 or fewer, the local entity may withhold any amount of retainage not exceeding 10% until final completion and acceptance of the project.
Prompt Pay Act claims for public projects
Once the government entity fails to pay any undisputed payments for labor or services provided, will entitle the provider to file a verified complaint seeking the undisputed, unpaid portion of the contract amount with an early evidentiary hearing. The complaint requirements and procedural steps are laid out in §255.071.
What should be included in the complaint?
The person who provided the labor or materials can file a verified complaint that contains all of the following information:
- The existence of a contract for providing such labor or materials to improve real property;
- Description of the labor or materials provided, and a statement alleging that they were furnished in accordance with the contract terms;
- The contract price;
- The amount, if any, already paid;
- The amount that remains unpaid, and the undisputed amount thereof;
- A statement that the undisputed amount has been due over 30 days after the labor or materials were provided; &
- That the person against whom the complaint is filed has received payment for the labor or materials described more than 30 days prior to the date the complaint was filed.
Once the complaint has been filed, the court will conduct an evidentiary hearing, no less than 15 days after written notice has been sent to the other party. An evidentiary hearing is basically a mini-trial, where evidence is offered to the judge, who will render a decision on each allegation.
If the claimant is successful on the claims, there is a list of statutory remedies available. These include an accounting of the disputed payment, temporary injunctions, prejudgment attachments, and any other legal or equitable remedies that the court deems applicable.
In addition to these remedies, the prevailing party will also be entitled to costs and attorney fees at both the trial and appeal level; if it comes to that.
Prompt payment on private construction projects in Florida is governed by Fla. Stat. §715.12, better known as the Construction Contract Prompt Payment Law.
Timing of payments
Once a project participant has complied with the contractual requirements, provided any necessary lien waivers, and submitted a proper pay application; they are entitled to payment.
Owners must make payment within 14 days of receiving a payment application from the prime contractor. In turn, the prime has 14 days to pay after receiving both a payment from the owner and a payment application from the subs. And so on, and so forth down the payment chain.
Owners, prime contractors, or whoever else is the paying party (i.e., payor), may withhold payments only if there is an improper pay application, bona fide dispute, or material breach of contract. However, if there is a dispute over payment, can only withhold the amount in question. They can’t withhold payment for labor or materials furnished that are not in dispute. Unless the contract explicitly states otherwise.
Any payment that is past due, minus retainage, will accrue interest starting on the 15th day of nonpayment. This interest rate is either set out in the contract or determined by the Florida Chief Financial Officer (CFO); whichever is greater.
Owners, prime contractors, and subs may agree in their contracts that the payor has a right to withhold retainage. But, retention funds must be paid out within 14 days of one of these events:
- A certificate of substantial completion is issued, and the contractor substantially completes the punchlist;
- The building inspector issues a certificate of occupancy and the contractor substantially completes the punchlist; or
- An owner or tenant takes possession of the property, and the contractor substantially completes the punchlist.
Prompt Pay Act claims for private projects
Once a contractor or owner has wrongfully withheld payment, §713.346 also provides a procedure for recovery. This is basically exactly the same verified complaint, process, and remedies provided on public projects.
The only real difference is the complaint must allege the existence of a contract as defined by 713.01. This defines a “contract” as an agreement for improving real property, written or unwritten, express or implied, and includes extras and change orders.
Pro tip: getting the info you need
So let’s say you’re a subcontractor working on a project, and you feel that payment is being wrongfully delayed or withheld. Before going through filing a complaint and all the costs associated with the procedure, you should know all the facts first. If prime contractors are required to release payment once they received funds form the owner; how do you know if, when and how much money has been released?
Fla. Stat. §713.16 provides a path to this information. It states that “any lienor who has filed a claim of lien may make a written demand on the owner for a written statement under oath” This statement must show the amount of all the direct contracts, the amount paid by the owner for all labor and materials furnished under the direct contract, the dates and amounts paid or to be paid, and the estimated cost of completing the direct contracts.
This written demand must contain the following warning, in large, “conspicuous type. It should state:
WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT WITHIN 30 DAYS OR THE FURNISHING OF FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR RIGHT TO RECOVER ATTORNEY FEES IN ANY ACTION TO ENFORCE THE CLAIM OF LIEN OF THE PERSONS REQUESTING THIS STATEMENT
As you’ve probably gathered from the language of the warning, the owner must furnish a response within 30 days. Failure to do so will waive their rights to recover any attorneys fees.
Now, there is no similar statute that provides for this under public projects. But, there is also no statute explicitly denying this demand either. The waiver of attorney fees may not be valid, but there’s no harm in requesting this information anyways. Government entities in charge of construction projects will most likely provide all the information necessary if there are projects fund getting clogged in the payment pipeline.
The Florida Prompt Payment Act(s) can be confusing at first. However, with a little understanding, contractors can quickly realize how useful these protections can be in the state of Florida. These statutes help set clear deadlines and impose interest penalties for late payments. Even without making an actual claim under the statute, the mere threat can be powerful leverage.