Bidder Beware: Construction Contracting By and With Local Governments in Florida
Construction contracting in the local government setting presents unique challenges that every construction law attorney and local government attorney should be familiar with. This article serves as a primer for those practitioners. Rest assured that the city or county will prescribe the form and content of the contract document. The contract is likely to be one of three project delivery formats: 1) the lump sum (low bid) form; 2) the construction management (CM) at-risk form; or 3) the design-build form. Each of these types of contracts is specifically authorized in F.S. §§255.103 and 255.20.
The low bid contract form is typically non-negotiable. With the CM at-risk form and the design-build form, negotiation as to project components and pricing is to be expected. The low bid form lends itself well to road and underground (utilities) construction when material quantities and linear footage are easily ascertainable. The CM at-risk and design-build forms are more likely to be utilized when the government is constructing a building.
Some of the unique features of local government construction contracting are payment and performance bonding, requirements for prompt payment, retainage on progress payments, dispute resolution processes, applicability of local purchasing ordinances, governmental sovereign immunity, tax-exempt materials purchases, and applicability of the Public Records Act.
Payment and Performance Bonding
F.S. Ch. 713 (Part I) — the construction lien law — has no applicability to local government construction contracts. Any unpaid general contractor, subcontractor, or material supplier who believes that he or she can place a lien on the government’s property will be in for a rude surprise. It is an impossibility. One need look no further than the definition of “owner” in F.S. §713.01(23); the term does not include any political subdivision, agency, department of the state, municipality, or other governmental entity.
Instead, the statutes prescribe a payment and performance bonding system to cover 1) the claims of unpaid subcontractors and materialmen (the payment aspect of the bond); and 2) the faithful performance of the contractor’s obligations to the governmental owner (the performance aspect of the bond). These requirements are set forth in F.S. §255.05. In its simplest terms, the contractor is required to purchase and post a surety bond from an insurance company (the surety), and it is the surety to whom unpaid construction participants must turn. The penal amount of the bond must equal the negotiated contract price.
There are additional requirements that the general contractor must keep in mind. The contractor must 1) record the bond in the public records of the county where the improvements are located; and 2) provide the local government with a certified copy of the recorded bond before commencing work. The government is prohibited from making any payments to the contractor before receipt of the certified copy of the recorded bond.1
In lieu of a bond, a contractor may file with the local government an alternative form of security, to include cash, money order, certified check, cashier’s check, or an irrevocable letter of credit.2
F.S. Ch. 218 (Part VII) is the Local Government Prompt Payment Act. F.S. §218.735 deals with prompt payment for purchases of construction services. In its simplest terms, the government must make payment to the general contractor 25 business days after the receipt of a payment request. If the government intends to reject the request as noncompliant with the contract, the rejection must occur within 20 days of receipt. If the government disputes only a portion of the pay application, the government must timely pay the undisputed portion.
Once the general contractor receives payment from the government, he or she must remit payment to subcontractors and suppliers within 10 days. Once a subcontractor receives payment from the general contractor, he or she must remit payment to sub-subcontractors and suppliers within seven days.
The Prompt Payment Act mandates that each local government construction contract contain a detailed “punch list” protocol to close out the project.3 Any local government construction contract that is devoid of such a provision is noncompliant with the statute. Finally, untimely payments by the government shall bear interest at the rate of 1 percent per month. While the construction contract can provide for a higher interest rate, there is no incentive for the government to agree to a higher rate.4
Retainage on Progress Payments
The Prompt Payment Act also contains requirements relative to retainage.5 Again, in its simplest terms, the government can withhold a maximum of 10 percent of each progress payment as retainage, until 50 percent of the total work is completed. At the 50 percent completion stage, the government must reduce retainage to 5 percent.
The contractor may, from time to time, demand payment of any portion of retainage, upon depositing with the state chief financial officer any of the following: U.S. Treasury bonds, notes, certificates of indebtedness or T bills, bonds or notes of the state of Florida, bonds of any political subdivision of the state, cash, or certificates of deposit from state or national banks or state or federal savings and loan associations. Naturally, the market value of the listed securities must equal or exceed the amount of retainage demanded by the contractor.6
The contractor can begin withholding retainage from his subcontractors only upon the subcontractors’ completion of at least 50 percent of the work. But, the contractor may withhold more than 5 percent based on the contractor’s assessment of the subcontractor’s past performance, the likelihood that such performance will continue, and the contractor’s ability to rely on other safeguards.7 Such safeguards might include a performance bond posted by the subcontractor.
Local governments will often prescribe an administrative process for the resolution of disputes. The lawyer representing the contractor should not be surprised to encounter a process that excludes any possibility of a direct action in the circuit court. Such processes may call for the design professional (architect or engineer), the purchasing director, or even the county or city administrator to be the initial decisionmaker. Such processes may involve an appeal to the county commission or the city council, and may conclude by restricting any court action to a petition for writ of certiorari. Such a process means that the dispute will never be heard by a jury.
Moreover, Florida local governments enjoy a common law litigation “home venue” privilege. In the absence of a legislative waiver of the privilege or where the government initiates litigation in a locale other than its home venue, then litigation will occur only in the locale where the local government maintains its principal headquarters.8
Sovereign Immunity Protection for the Local Government
Any lawyer who has crossed paths with a Florida local government is likely familiar with the limited waiver of sovereign immunity that appears in F.S. §768.28. Such practitioners are also likely aware that the protections afforded local governments in the statute are restricted to tort-based claims. A lesser known aspect of the law of sovereign immunity lies in the realm of contracts. This law was initially established in a series of court decisions, several of which deal with construction contracts. Construction contractors must be mindful of and vigilant about the performance of work that is “extra” or “outside of” the construction contract. In the absence of an express written contract amendment or change order, the contractor may be left “holding the bag” when seeking additional compensation from the government.9
In addition, liability theories of implied contract, quantum meruit, and unjust enrichment are likely to fail when asserted against a local government.10 There is a codification of sorts of this body of caselaw (but only as to public works projects) that appears at F.S. §255.05(9). Among other things, the statute provides that “no liability may be based on an oral modification of either the written contract or written directive.” Furthermore, “[n]othing herein shall be construed to waive the sovereign immunity of the state and its political subdivisions from equitable claims and equitable remedies.” Unjust enrichment is an equity claim.11 The statute, thus, solidifies the notion that an unjust enrichment claim will not lie against a local government.
Local Government Purchasing Ordinances
City and county purchasing (or procurement) ordinances should always be of concern to the construction contractor. In addition to prescribing dispute resolution processes as discussed above, such ordinances may provide for processes by which contractors are graded on their performance and prohibited (or debarred) from entering future contracts with the government based on past poor performance.12 Records created by the government in these processes are public records. Moreover, any decision by a local government to debar a contractor can act as a “scarlet letter” of sorts, whereby the contractor will likely need to reveal such disciplinary action when it seeks to land jobs with other government entities. Such shaming can extend to the private sector as well, if an owner, under a vetting process, seeks information on the past performance of contractors who have performed public-sector work.
“No Damages for Delay” Contract Clauses
“No damages for delay” contract clauses will be encountered much more often in public works construction contracts, as opposed to private construction contracts. Such clauses typically provide that if job progress is delayed, the contractor is entitled to an extension of contract time (to avoid the potential assessment of liquidated damages for delay), but not an increase in contract price. Generally, such clauses are enforceable.13 In practice, however, courts have parsed the conduct of governmental owners and have been quick to invalidate “no damages for delay” clauses. In instances in which the owner has acted fraudulently or in bad faith, or the owner has actively interfered with job progress, such a contract clause will not serve to shield the owner from liability.
Examples of invalidation by the courts are Southern Gulf Utilities, Inc. v. Boca Ciega Sanitary District, 238 So. 2d 458 (Fla. 2d DCA 1970), cert. den., 240 So. 2d 813 (Fla. 1970), where the district failed to timely acquire the rights-of-way the contractor needed to work within; and Newberry Square Development Corp. v. Southern Landmark, Inc., 578 So. 2d 750 (Fla. 1st DCA 1991), where the owner delayed approval of plans and specifications, delayed executing change orders, and failed to timely make progress payments.
The Public Records Act
Construction contractors doing business with local governments might ask, “What does the Public Records Act have to do with me?” The answer lies in F.S. §119.0701 as amended in 2016. Or does it?
As amended, the statute requires public agency contractors who are “acting on behalf of the public agency” to provide public records to the agency within a reasonable time after a request has been made. The contractor’s failure to do so can subject the contractor to potential noncriminal and criminal penalties and to a civil action wherein the contractor is potentially liable for the costs of enforcement, to include reasonable attorneys’ fees.14
If a county hires a private firm to handle all medical treatment of inmates within its county jail, that firm (contractor) is acting on behalf of the public agency. In this example, the county has taken a traditional government function and has turned the function over to a private contractor.15 Records held by the contractor are, thus, public records subject to inspection (no effort will be made here to address the separate body of law dealing with confidentiality of medical records).
Similarly, if a city hires a private towing company (contractor) to remove wrecked and abandoned vehicles from city streets and other city property, the towing company is performing what is essentially a governmental function. The contractor’s records are, thus, public records subject to inspection.16 Can the same be said when a county contracts with a construction firm to install a water line within county-owned road right-of-way, or to widen a county road from two lanes to four, or to construct a new county administration building wherein the county will thereafter perpetually own, occupy, and maintain the improvements?
The difficulty in determining the statute’s applicability to a construction contractor is the question of whether such a contractor “is acting on behalf of the public agency.”17 The best guidance thus far in the construction contracting setting, from either the legislature or the courts, albeit predating the 2016 amendments to the statute, is the decision in Harold v. Orange County, Florida, 668 So. 2d 1010 (Fla. 5th DCA 1996). The Fifth District Court of Appeal held that some, but not all of the construction manager’s records related to the expansion of the Orange County Civic Center (a public building on public property) were public records. Specifically, records required to demonstrate compliance with the county’s fairness in procurement ordinance when hiring subcontractors were deemed public records that the construction manager was required to maintain and provide upon request.
Until legislative or additional judicial guidance is forthcoming, the local government and the construction contractor are best advised to assume that the statute is applicable to some aspects of their contractual relationship — particularly those in which the government requires records to be created or maintained for its benefit.
Thus, the statute’s mandatory contract language — requiring the contractor to comply with the public records laws — should be incorporated into local government construction contracts, and private contractors should govern themselves accordingly.
Additional Statutes That Are Unique to Contracting with Local Governments
While not an exhaustive list of applicable statutes, the practitioner should nevertheless be aware of the following additional statutes that bear upon local government construction contracting.
• F.S. §212.08(6) — On occasion, the local government may express a preference to directly purchase materials to be incorporated into its project to avoid the payment of sales tax. This statute allows such direct purchases. Generally, payment must be made directly to the dealer by the government entity. The contracting parties are well-advised to provide for this option up front with express contract language, and to avoid invoking this option as a mere afterthought. Additional guidance is provided by the Department of Revenue at F.A.C. Rule 12A-1.094.
• F.S. §218.80 — The “Public Bid Disclosure Act” requires the local government to disclose all of its permit fees, license fees, and inspection fees up front, and prohibits the government from halting or delaying construction in order to collect such fees. Moreover, the government is prohibited from collecting any fees from the contractor that were not disclosed in the bidding documents or the contract. This section does not apply to fees that might be charged by entities other than the local government that issued the bidding documents.
• F.S. §255.071 — This statute is an adjunct to the Prompt Payment Act, discussed above. Once a progress payment is made by the local government to the general contractor, any subcontractor, or sub-subcontractor who remains unpaid 30 days after the payment due date may file suit, and is entitled to an evidentiary hearing upon 15 days’ written notice. A successful claimant is entitled to an accounting, a temporary injunction, prejudgment attachment, and reasonable attorneys’ fees and costs. This procedure and these remedies are an alternative to, or in addition to, pursuing a claim under the payment and performance bond.
• F.S. §§725.06(2) and 725.06(3) — Indemnity provisions in public agency construction contracts are allowed. The combination of these two subsections makes it clear, however, that in government construction contracting, any attempt to require a party to the contract to indemnify the other party for the indemnitee’s own negligence is void as against public policy.
Construction contracting by and with Florida local governments can present many unique challenges and pitfalls. A twist on an old maxim, thus, applies: Bidder beware.
1 Fla. Stat. §255.05(1)(b).
2 Fla. Stat. §255.05(7).
3 Fla. Stat. §218.735(7).
4 Fla. Stat. §218.735(9).
5 Fla. Stat. §218.735(8).
6 Fla. Stat. §255.052.
7 Fla. Stat. §218.735(8)(c).
8 See Addison v. City of Tampa, 33 So. 3d 742 (Fla. 2d DCA 2010).
9 See Southern Roadbuilders, Inc. v. Lee County, 495 So. 2d 189 (Fla. 2d DCA 1986), rev. den., 504 So. 2d 768 (Fla. 1987); County of Brevard v. Miorelli Engineering, Inc., 703 So. 2d 1049 (Fla. 1997); C.O.B.A.D. Construction Corp. v. School Bd. of Broward County, 765 So. 2d 844 (Fla. 4th DCA 2000).
10 See Brevard County v. Louis C. Morehead III, 181 So. 3d 1229 (Fla. 5th DCA 2015), rev. den., 2016 WL 1719083 (Fla. 2016).
11 See Bowleg v. Bowe, 502 So. 2d 71 (Fla. 3d DCA 1987).
12 See, for example, Manatee County Code §§2-26-43, 2-26-70 and 2-26-71; Pinellas County Code §2161; Orange County Code §17-314; Broward County Code §§21.119, 21.120 and 21.121; and Sarasota County Code §2-222.
13 See C.A. Davis, Inc. v. City of Miami, 400 So. 2d 536 (Fla. 3d DCA 1981); Triple R Paving, Inc. v. Broward County, 774 So. 2d 50 (Fla. 4th DCA 2000).
14 Fla. Stat. §§119.0701(3)(c), 119.0701(4).
15 See Prison Health Services, Inc. v. Lakeland Ledger Company, 718 So. 2d 204 (Fla. 2d. DCA 1998), rev. den., 727 So. 2d. 909 (Fla. 1999).
16 See Fox v. News-Press Publishing Company, 545 So. 2d 941 (Fla. 2d DCA 1989).
17 See §119.0701(1)(a).
MITCHELL O. PALMER is the county attorney for Manatee County. He is board certified by The Florida Bar in construction law.
This column is submitted on behalf of the City, County and Local Government Law Section, Robert Lon Teitler, chair, and David Miller, editor.