Conditional Versus Unconditional Private Payment Bonds
A payment bond is a security posted by the general contractor that ensures that payments will be made to subcontractors, sub-subcontractors, and material providers for services or products provided on private and public construction projects. Payment bonds are most commonly associated with public projects, which are governed by Florida’s Little Miller Act. In some cases, however, payment bonds are utilized during private construction, most commonly under the request of the owner to avoid a lien being placed on the property. In such case, there are two types of bonds that can be secured, unconditional and conditional.
To provide you with a better understanding of how the two types of private payment bonds work, our Bradenton construction attorneys have provided an overview of each bond type and the conditions that must be met in order to place a claim against the bond.
Unconditional Private Payment Bonds
With an unconditional payment bond, the owner is exempt from a lien being placed on their property. Instead, the subcontractor, sub-subcontractor, or material provider will place a claim against the bond, regardless of whether payments are made to the general contractor. Similar to Florida’s Construction Lien Law, there are very particular steps that must be taken to recover non-payment. In order for a property to be exempt from a construction lien, the payment bond must be recorded at the same time as the notice of commencement, and then posted to the job the site. The only exception to this is if a transfer bond is secured and recorded with the clerk of court after the project begins.
Within 45 days of the first furnishing of labor, services, or materials, the “lienor” not in privity with the general contractor is required to serve a notice to contractor as mandated within Florida Statute 713.23. If the bond, however, is not recorded with the notice of commencement, the lienor will have 45 days from the date he was served a copy of the bond to provide the notice to contractor. The next requirement to place a claim against the payment bond is to supply both the contractor and the surety with a notice of nonpayment within 90 days of the final furnishing of labor, services, or materials. This document should also follow the guidelines set forth within the Florida Statutes.
The final step in recovering nonpayment is to file a claim against the payment bond, which must be done within one year of the final furnishing of service.
Due to the highly legal and technical nature of filing a claim against an unconditional payment bond, it is strongly recommended to consult with an experienced construction attorney in Bradenton who can guide you through the filing process.
Conditional Private Payment Bonds
The second type of private payment bond is a conditional payment bond, most commonly referred to as the “pay when paid” clause. This basically means that a lienor will place a claim against the payment bond only if payments have been made to the general contractor. Otherwise, non-payment will be recovered by placing a construction lien on the property. A conditional lien can add an extra level of difficulty because the lienor may not always be privy to information about payments between the contractor and the owner. The process is governed by Florida Statutes 713.245 and outlines the steps that lienors should take in order to recover payments for labor, services, or materials.
With a conditional payment bond, the owner is required to attach the bond to the notice of commencement when it is recorded with “Conditional Payment Bond” on the front page title of the bond. It must also have the statement:
“THIS BOND ONLY COVERS CLAIMS OF SUBCONTRACTORS, SUB-SUBCONTRACTORS, SUPPLIERS, AND LABORERS TO THE EXTENT THE CONTRACTOR HAS BEEN PAID FOR THE LABOR, SERVICES, OR MATERIALS PROVIDED BY SUCH PERSONS. THIS BOND DOES NOT PRECLUDE YOU FROM SERVING A NOTICE TO OWNER OR FILING A CLAIM OF LIEN ON THIS PROJECT.”
In regards to the lienor, they should act in the same manner as would be done when filing a construction lien. The notice to owner should be supplied within 45 days of the first furnishing of labor, services, or material, and the claim of lien should be recorded within 90 days of the final furnishing of labor, services, or material. Once the claim of lien is filed the owner has 90 days to transfer the lien to the bond, after which the lienor has one year to file a claim against the bond to recover payment. If the lien is not transferred, the lienor should move forward with foreclosing on the lien within one year from the filing date of the claim of lien.
Both the unconditional and conditional payment bonds should be recorded and filed exactly as it is mandated within the Florida Statutes, and with the consultation of a construction lawyer in Bradenton who has experience with both private payment bonds and construction liens.
To schedule a consultation with an attorney from Cotney Attorneys & Consultants, please call us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.