Florida already has prompt payment laws aimed to ensure timely payments on public and private projects. Additionally, there is also some potential criminal liability for the misapplication of construction funds.
Recently, the Florida Legislature has taken it a step further and increased the interest penalties for late payment — and suspension of the contractors’ license for such a violation.
These new penalties are now in effect and apply to all construction contracts entered into after July 1, 2021.
New penalties for payment violations effective in Florida
Overview
- Bill: Senate Bill 378: An act relating to payment for construction services
- Sponsor(s): Senator Jennifer Bradley
- Effective Date: July 1, 2021
Any Florida construction contract entered into after July 1, 2021, will be governed by these new payment penalties.
Senator Bradley, the primary sponsor of the bill said this regarding the enactment of these new provisions:
“Construction contracting can be a complicated business, especially for larger projects involving many contractors, subcontractors, sub-subcontractors, and material men. To ensure prompt and proper payment, SB378 increase penalties for the illegitimate retention of construction funds.”
“The bill increases the statutory interest rate for wrongfully withholding payment for public and private construction contracts, Bradley continued. “It also specifies that late payments made to subcontractors may subject a contractor to criminal penalties for misapplication of construction funds. These are important steps to protect the obligations and responsibilities at all levels of the project.”
Prompt payment interest rates increased
Florida’s prompt payment laws provide for statutory interest damages for late payments on construction projects within the state. Under this new legislation, the late payment interest penalties will increase on both private and public projects.
Private project late payment interest
Payments on private projects in Florida must be made to prime contractors must be made according to the terms of the contract. If, not, then the owner must release payment within 14 days of receipt of a proper request for payment. All other payments down the contracting chain must be made within 30 days of either; (a) the hiring party receives payment or, (b) when the labor, services, or materials were received.
Previously, late payments on private projects would accrue at the rate of statutory interest set by the Chief Financial Office; which, as of July 1, 2021, is currently set at 4.25% per year.
Under the new legislation, an additional 12% per year will be added to the rate set by the State CFO. For those counting at home, that means that the current interest rate is a total of 16.25% per year.
Public project late payment interest
On public projects, the timing of payments can vary depending on the type of project, and whether payments require approval by an agent.
For a full breakdown of the Florida public prompt payment deadlines, click here.
Late payments on public projects preciously accrued interest at a rate of 1% per month, or the rate specified in the contract, whichever was greater. This has been increased to 2% per month, or the rate specified in the contract, whichever is greater.
Penalties for misapplication of construction funds
Generally speaking, Florida doesn’t have a construction trust fund statute, per se. However, there has been a statute imposing criminal liability for the intentional and knowing misapplication of funds. Under this statute, to be criminally liable, the funds must have been used for a “wrongful purpose.” If so, the contractor may be charged with a felony, the degree of which is determined by the dollar amount of misapplied funds:
- $100,000 or more: First-degree felony
- Between $1,000–$100,000: Second-degree felony
- $1,000 or less: Third-degree felony
With this new legislation, misapplication of funds also includes any “party who knowingly and intentionally fails to make the payment” — regardless of how the funds were applied.
This applies to both private projects (under §713.346) and public projects (under §255.071).
Not only that, there are additional penalties that may be imposed, in the form of a suspension of their license by the Florida DBPR, Construction Industry Licensing Board. This additional penalty can be found under the newly added provision under Fla. Stat. §489.129(1)(r):
“Committing misapplication of construction funds in violation of s. 713.345. If a contractor, subcontractor, or sub-subcontractor, or other person licensed by the board under this chapter is convicted of misapplication of construction funds, the board must suspend all licenses issued to such licensee under this chapter for a minimum of 1 year from the date of conviction. The suspension required under this paragraph is not exclusive, and the board may impose any additional penalties set forth in this subsection.”
FL owners and contractors should be wary of increased penalties
It appears that the Florida legislature is looking to crack down on the improper withholding of payments in a big way. Under these new changes, improper withholding can lead to increased interest penalties, liability for a felony, and could have their license suspended!
Florida attorney Jason Lambert, a member of our Levelset Community, weighed in on the lew legislation in his recent blog post:
“While contractors need to be careful when they decide to withhold funds from a subcontractor or material supplier due to these new penalties, it is important to note that this new statute also applies to property owners,” Lambert said.
“So, where a property owner is improperly withholding some or all of a payment, contractors should feel confident invoking this statute. Further, contractors should consider revising their contracts to limit the circumstances that could constitute a valid dispute.”