The biggest difference between public and private projects is the requirement of performance and payment bonds on public jobs. We have more material on performance and payment bonds, but in short, general contractors must provide insurance that they will complete the project and that they will pay their subcontractors and suppliers. Payment bonds are especially helpful because public projects are not subject to mechanics liens.
Without the opportunity to make a bond claim, a subcontractor or supplier might be left empty-handed. Currently, there’s reason to believe that surety bonds on public projects may get cheaper going forward. While this is good news for GCs and subs alike, subcontractors know that bonds don’t always necessarily equal proper protection, like in the instance of an insolvent surety.
Still, courts often favor subs and suppliers when dealing with bond claims. This was evident in a recent Florida case that posed the question: How long does a payment bond last on a Florida public project? The answer appears to be that a surety bond will last for the full duration of a project, regardless of the language of the bond.
The Case
The case in question is Maschmeyer Concrete Company of Florida v. American Southern Insurance Co. In the late stages of a project with the City of Orlando, Maschmeyer was brought on by a general contractor to supply concrete. After Maschmeyer went unpaid, the supplier filed a claim on the GC’s surety, American Southern Insurance. The surety, however, denied the claim, stating that it only provided payment bonds for the first year of the GC’s contract with the city. Maschmeyer filed suit.
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Facts
The crux of the case was whether the contract for the surety bond expired after one year or continued throughout the general contractor’s work on the project. According to the terms of the bond the general contractor provided to the City of Orlando, the surety only agreed to provide a bond for the first year of the project. This is because the contractor’s agreement with the city was for a one year term.
However the contract could be renewed one year at a time, and this could continue for up to 60 months total. Under that contract, the general contractor was to provide either a new bond or an amended bond to cover the remaining period on the project. The project began in 2011. While yearly renewals and the accompanying bond amendments were made at the beginning of the project, following 2013, the surety bonds were not amended. This meant there were no payment or performance bonds covering the project after that time.
Arguments
As mentioned above, Maschmeyer did not provide any materials to the project until the later stages- specifically, until 2014. American Southern Insurance stopped providing bonding for the project in 2013. After Maschmeyer was not paid for materials provided between October of 2014 and January 2015, Maschmeyer filed a bond claim against American Southern Insurance. Naturally, the surety argued that it had no obligation to pay the claim, as its coverage on the project did not extend beyond 2013. In opposition, Maschmeyer claimed that American Southern Insurance’s coverage lasted the full term that the general contractor’s agreement would extend with the state.
The Court
This was the first time a Florida court had decided such an issue, and the court sided with Maschmeyer. As we’ve seen in the past, Florida courts aren’t always so lien-ient.
The court found it compelling that the general contractor only bid on the project one time. Because there were no more bids made on the project after year one, all of the work that followed the original contract then took place under the term of that first contract. Thus, the contract ended up covering 60 months. While American Southern Insurance’s contract with the general contractor stated only a one year term, Section 1(e) of Florida’s Little Miller Act prohibits altering the duration of a bond on a Florida public project. The full duration of the contract must be covered by the bond.
Takeaway
The court was sort of backed into a corner here. If the contract was not one continuous contract but several smaller contracts, the city improperly contracted for public works projects without utilizing the bidding process. Further, the city then would have failed to require bonds on the final years of the project. Considering only one bidding process occurred, it made much more sense to the court to consider this one continuous contract for which a surety agreement must extend to the whole term.
While this poses a fair outcome for the supplier (bonds must be provided on public projects in Florida that exceed $100,000), the surety may have gotten the short end of the stick. After all, if the general contractor only purchased bonds through 2013, the surety then received nothing for the risk it took on in the final years on the contract. Don’t shed any tears for American Southern Insurance, though. The statute is clear that any language restricting or expanding the duration of a bond is unenforceable. Surety bonds on a Florida public project last until the project’s completion.
For more on the laws that pertain to a Florida public project, check out our materials on the Florida Little Miller Act. We also have a guide on How to Get Paid on Florida Public Projects as well as materials on public projects for every state.
