Pay now or pay more later: the current state of the law on undisputed construction obligations.

• Author: Feldman, Andrew

Unlike disputes arising out of many other contractual relationships, often those disputes relating to a construction project are complicated by the fact that all involved parties will not necessarily be in privity with each other. In fact, it is customary for several layers of separation to exist between those persons or entities actually performing labor or providing materials and the owner. For example, the general contractor, architect, or engineer may each contract directly with the owner. In turn, the general contractor may then contract with any number of subcontractors, who may themselves contract with one or more sub-subcontractors. But there always exists one constant: The owner is generally responsible for making payment when due in connection with labor, services, or materials provided for a particular project.

When payment is made, it will often be made directly to whoever is in privity with the owner. What happens, however, after the owner pays and that payment does not make it to the provider of the labor, services, or materials? The answer to this question and the rights of the parties differ greatly depending upon whether the amount in question represents a "disputed contract obligation" or an "undisputed contract obligation."

This article will explore that distinction, focusing specifically on the statutory remedies available for the immediate recovery of any undisputed amounts, as well as the risk associated with delaying payment of such undisputed amounts. Suggestions will be offered for the provider of labor, services, or materials to investigate and expedite recovery oo those amounts that are undisputed.

Overview of Florida Legislation

F.S. Title XVIII, Ch. 255 addresses various matters regarding public property and publicly owned buildings. Included among Ch. 255's provisions is [section] 255.071, entitled "Payment of subcontractors, sub-subcontractors, materialmen, and suppliers on construction contracts for public projects." This statute provides, in part, as follows:

(1) Any person, firm, or corporation who receives a payment from the state or any county, city, or political subdivision of the state, or other public authority, for the construction of a public building, for the prosecution and completion of a public work, or for repairs upon a public building or public work shall pay, in accordance with the contract terms, the undisputed contract obligations for labor, services, or materials provided on account of such improvements.

(2) The failure to pay any undisputed obligations for such labor, services, or materials within 30 days' after the date the labor, services, or materials were furnished and payment for such labor, services, or materials became due, or within 30 days after the date payment for such labor, services, or materials is received, whichever last occurs, shall entitle any person providing such labor, services, or materials to the procedures specified in subsection (3) and the remedies provided in subsection (4).

The above language mandates that anyone receiving payment from a public entity or authority in connection with labor, services, or materials for work done on a public project is statutorily obligated to pay to the provider of the labor, services, or materials the undisputed contract obligations. Failure to pay within 30 days following the later of either the date when the labor, services, or materials were furnished and payment became due, or the date payment was received, entitles the provider to various statutory remedies.

The available remedies include: 1) an accounting of the use of any such payment; 2) a temporary injunction against the person who received such payment; 3) prejudgment attachment against the person who received such payment (2); and 4) such other legal or equitable remedies as may be appropriate in accordance with the requirements of the law. (3) This final provision is essentially a catch-all and would certainly include entry of a judgment for the undisputed contract obligation. (4) While these remedies must be granted without regard to any other remedy at law and without regard to whether irreparable damage has occurred or will occur, (5) the statutory remedies are unavailable either to the extent of a bona fide dispute (6) regarding any portion of the contract price, or in the event the plaintiff has committed a material breach of the contract which would relieve the defendant from its obligations under the contract. (7) Finally, the prevailing party in any proceeding brought pursuant to F.S. [section] 255.071 is entitled to recover costs, including reasonable attorneys' fees, at trial and on appeal. (8)

Since, by its own terms, F.S. [section] 255.071 applies only to construction contracts for public projects, it provides no benefit to subcontractors, sub-subcontractors, materialmen, and suppliers who perform work on privately owned projects. Instead, and unlike the providers of labor, services, or materials for public projects, (9) those parties performing work on privately owned projects derive various rights from the provisions of Florida's Construction Lien Law (F.S. Ch. 713). (10) Through F.S. [section] 713.346, the Florida Legislature has provided similar rights to subcontractors, sub-subcontractors, materialmen, and suppliers performing work on private projects as those provided by F.S. [section] 255.071. In fact, while the statutory section is different, the entitlement to any undisputed contract obligation, and the remedies available in the event of a failure to timely pay such an undisputed obligation, are identical for those performing work on private projects and public projects. Accordingly, cases interpreting one of the statutory provisions should be persuasive in interpreting the other. (11)

Pursuing Claims Under F.S. [subsection] 255.071 and 713.346

* Procedures Set by Statute

The requirements for pursuing a claim under F.S. [section] 255.071 are set forth clearly by the statute itself. Specifically, the person providing the labor, services, or materials may file a verified complaint alleging the following: 1) the existence of a contract for providing such labor, services, or materials to improve real property; 2) a description...