Cash flow is an important aspect of a contractor’s financial evaluations and forecasts.[1] An owner’s failure to pay timely can break a contractor. Florida law provides contractors with a statutory right to prompt payment. In this article we will look at the contractor’s right to prompt payment on local government projects.
Florida Notice to Owner (NTO) 1-Page Fact Sheet
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Overview
in Florida the Local Government Prompt Payment Act requires timely payment of all undisputed amounts.Owners sometimes withhold monies beyond retention and undisputed amounts. Maybe the owner or its representative is spread too thin and cannot get to the contractor’s application for payment in a timely manner. Sometimes they simply demand more from the contractor than they are entitled to. And, sometimes they blame a lack of progress on the contractor when in reality the failure to provide responses to requests for information is the problem. Whether the delay in payment is for those or other reasons, in Florida the Local Government Prompt Payment Act requires timely payment of all undisputed amounts.[2]
Florida’s Local Government Prompt Payment Act[3] applies to projects of any “county or municipal government, school board, school district, authority, special taxing district, other political subdivision, or any office, board, bureau, commission, department, branch, division, or institution thereof.”[4] An express purpose of the law is to ensure that all construction services purchased by local governmental entities are paid in timely manner.[5] The Act provides for interest of 1% per month or the rate set forth in the contract, whichever is greater, on payments that are late.[6] Additionally, the statute provides for attorney’s fees to the prevailing party in an action to recover late payments.[7]
Contractor “Payment Requests” and “Invoices”
The timeline for payment or rejection of applications for payment under the Local Government Prompt Payment Act depends upon whether the application must be approved by the local governmental entity itself or by its agent, such as the project architect.[8] The timing scheme is triggered by the contractor’s submission of an application for payment.
The Act requires local government entities to establish procedures for receiving applications for payment and stamping them as received on the date of delivery to an agent or employee of the local governmental entity or to a facility or office of the local governmental entity.[9] Once stamped, the clock starts ticking for when the application must be paid or rejected.[10]
The timeline for payment or rejection of applications for payment under the Local Government Prompt Payment Act depends upon whether the application must be approved by the local governmental entity itself or by its agent, such as the project architect.In the case where the contractor is required to submit applications for payment to the local governmental entity’s agent, the Act states that payment is due 25 business days after the application is stamped as received.[11] However, if the application is neither paid nor rejected within that time, the statute allows the contractor to send the governmental entity an overdue notice.[12] If the application is not rejected within four business days after delivery of the overdue notice, the application is deemed accepted, except for any portions that are fraudulent or misleading.[13]
In the case where the applications for payment are approved by the local governmental entity itself and not an agent, payment is due 20 business days after the application for payment is stamped as received.[14] The local governmental entity is charged with determining whether a contractor’s application for payment conforms with the contract requirements. If any application for payment does not meet the contract requirements, the local governmental entity is required to reject the application within 20 business days of the date stamped as received.[15]
The law requires that any rejection for failure to meet the contract requirements be in writing and that it specify the deficiencies in the application for payment, as well as what is needed to correct it.[16] When a corrected application for payment is submitted, it must be paid or rejected either within 10 days of being stamped as received[17] or, if ordinance, charter, or other law requires a meeting (such as a commission meeting) for approval or rejection of applications for payment, then payment or rejection is required on the first business day after the regularly scheduled meeting held by the local governmental entity after date the corrected payment application is stamped as received.[18] The Act does not state any exceptions.
Requests for Retainage
The Local Government Prompt Payment Act allows the contractor to present an application for up to one-half of the retainage held by the local government entity after 50% of the construction services are completed.[19] Unless the local governmental entity has grounds for withholding the retainage due to a good faith dispute, claim, or demand, the statute requires prompt payment of the reduction in retainage.[20] These provisions governing retainage may not apply when the construction services are paid in whole or in part with federal funds.[21]
Additionally, while the Act’s provisions governing the preparation of a punch list are beyond the scope of this article, it should be noted that the statute allows the contractor to submit an application for payment for all retainage being withheld by the local governmental entity if the local governmental entity fails to compile the punch list within the times specified by statute.[22] The statute requires this application for payment to be paid within 20 business days after receipt, unless the governmental entity provided the contractor with notice of failure to comply with its obligations concerning the development of the punch list or the amount requested is subject to a good faith dispute, claim, or demand.[23]
When the punch list work is completed, the contractor may request all remaining retainage.[24] The local governmental entity may withhold up to 150% of the total costs to complete in the event that a good faith dispute exists.[25] The Act does not state a time frame for when the application for all remaining retainage must be paid or rejected. The standard of 20 business days after receipt should apply.
Caution: only a proper application for payment can trigger a prompt payment obligation
Importantly, to meet the statutory definitions, the applications for payment must conform with all statutory and contractual requirements.The provisions requiring the local governmental entity to make prompt payment are keyed to a contractor’s “payment request” or “invoice”. Throughout this article, I have used the term “application for payment” in place of those two terms. Both “payment request” and “invoice” are terms defined in the statute. Importantly, to meet the statutory definitions, the applications for payment must conform with all statutory and contractual requirements.[26] While not a surprising requirement, the contractor should take care to ensure all of the proverbial t’s are crossed and i’s are dotted.
Contractor’s Enforcement of the Local Government Prompt Payment Act
The Act calls for initial dispute resolution procedures. The local governmental entity is required to establish procedures pursuant to which it has the obligation to make a final decision on a payment dispute with a contractor.[27] The proceedings are required to be commenced within 45 days, and concluded within 60 days, after a proper application for payment is received.[28] Interest accrues 15 days after the local entity’s final decision, if the dispute is resolved in favor of the government, or from the date the application for payment is submitted, if the dispute is resolved in favor of the contractor.[29]
If the local governmental entity fails to commence the dispute resolution procedures within 45 days, the Act allows the contractor to give written notice of that failure.[30] If the local governmental entity still fails to commence proceedings within 4 business days thereafter, the objection to the application for payment is deemed waived and the contractor is entitled to interest on amounts resolved in its favor from the date that the application for payment was submitted to the local governmental entity.[31]
Should the contractor be dissatisfied with the results of the local governmental entity’s determination or otherwise wish to enforce the Local Government Prompt Payment Act, resort to the courts is available.
Summary
Interest recoverable under the Act can mount up, and if the underlying contract does not contain an attorney fee provision, the Act can provide the contractor with an effective remedy. Additionally, the prospect of having to pay interest and attorney’s fees can be compelling for local government contract administrators and even the elected officials to whom they ultimately report, as such additional payments to the contractor from the public coffers may appear to be wasteful. Although not a tremendously heavy stick and not without ambiguities, the Local Government Prompt Payment Act does provide procedures and remedies that can help a contractor get paid.
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[1] See, e.g., Richard H. Clough, et al., Construction Contracting §§ 9.32, 9.33 (8th Ed. 2015).
[2] Florida Statutes, sec.218.735(5).
[3] Florida Statutes, sec. 218.70 et seq.
[4] Florida Statutes, sec. 218.72(5).
[5] Florida Statutes, sec. 218.71.
[6] Florida Statutes, sec.218.735(9).
[7] Florida Statutes, sec.218.76(3).
[8] Florida Statutes, sec.218.735(1)(a) & (b).
[9] Florida Statutes, sec.218.74(1).
[10] Florida Statutes, sec.218.735(1).
[11] Florida Statutes, sec.218.735(1)(a).
[12] Florida Statutes, sec.218.735(1)(a).
[13] Florida Statutes, sec.218.735(1)(a).
[14] Florida Statutes, sec 218.735(1)(b).
[15] Florida Statutes, sec. 218.735(2).
[16] Florida Statutes, sec. 218.735(2).
[17] Florida Statutes, sec. 218.735(3)(a).
[18] Florida Statutes, sec. 218.735(3)(b).
[19] Florida Statutes, sec. 218.735(8)(d).
[20] Florida Statutes, sec. 218.735(8)(d).
[21] Florida Statutes, sec. 218.735(8)(h).
[22] Florida Statutes, sec. 218.735(7)(i).
[23] Florida Statutes, sec. 218.735(7)(i).
[24] Florida Statutes, sec. 218.735(7)(c).
[25] Florida Statutes, sec. 218.735(7)(c).
[26] Florida Statutes, sec. 218.72(7) & (8).
[27] Florida Statutes, sec. 218.76(2)(a).
[28] Florida Statutes, sec. 218.76(2)(a).
[29] Florida Statutes, sec. 218.76(2)(a).
[30] Florida Statutes, sec. 218.76(2)(b).
[31] Florida Statutes, sec. 218.76(2)(b).