2020 Legislative Update from Cobb & Gonzalez

By Nicholas Elder February 4, 2020 Posted in Construction Law Share

Each year the Florida legislature meets during session for a period of 60 consecutive days, addressing issues important to individuals and businesses across the State.  The 2020 legislative session began on January 14, 2020, and lawmakers have proposed several pieces of legislation that will directly impact the construction industry.  Summarized below in a 2020 legislative update are three of those proposed bills currently being considered by the legislature. 

Reduction in Retainage – Senate Bill 256/House Bill 101

A bill with momentum after coming up short in 2019 would reduce the amount of retainage on public construction projects.  Retainage is a construction process whereby a project owner withholds a certain percentage of a payment from the contractor, who in turn withholds a certain percentage from the subcontractors until a project is completed. Owners rely on retainage to ensure that a contractor or subcontractor will complete the construction project.

The current law sets limits on the amount of retainage for state and local government projects.  Presently, for contracts over $200,000, the amount withheld is 10% of every progress payment until a project is halfway complete, when it then drops to 5%.  For projects under $200,000, the retainage is a flat 10% until project completion. 

This proposed bill will reduce the retainage rate to a flat 5% for the duration of a project, and would apply to projects of all size.  Proponents of the bill argue that public entities can often be slow to pay contractors and subcontractors on public construction projects.  This, combined with the higher retainage rate, creates cash flow issues for smaller businesses with a greater need for these funds.  Thus, a reduction in the retainage percentage would ease the financial stress on these smaller companies.

The proposed bill has recently passed through all committees in the Florida House of Representatives and will next be scheduled for a vote by the full House.  If passed, the bill will then be considered by the Senate. 

Release of Lien Protection – House Bill 283

House Bill 283 seeks to provide greater protection to subcontractors, laborers and material suppliers that possess lien rights in Florida.  While the proposed bill outlines numerous revisions to Florida’s lien law, the below summary focuses specifically on lien releases and liens attaching to multiple properties.

Any person who provides services, labor, or materials for improving, repairing, or maintaining real property, other than public property, may enforce a construction lien against a property if they are not timely paid for their services and have properly notified the parties.  A person may record a single claim of lien for multiple services or materials that are provided for different properties as long as the multiple services or materials are under the same contract.  However, a person must record separate claims of lien if there is more than one contract, even if the contract is with the same owner.

Prior to making a payment to a contractor (who then ultimately pays subcontractors and suppliers), an owner must request a waiver or release of lien from those parties who performed the work.  A release of lien can be either a partial release for a certain portion of work or services, or can be a final waiver for all work that person or business performed on the project. 

The law as it currently stands provides statutory form language to be included in a lien release.  Importantly, however, the law does not require that the release of lien be in that statutory form.  In fact, it has become routine for lien releases to contain additional miscellaneous provisions that often benefit the owner of a project. Oftentimes these added provisions have little or nothing to do with the work performed or payment received under the release, and are to the detriment of subcontractors, laborers and materialmen.

House Bill 283 provides that a person may not be required to sign a release of lien that is different from the statutory forms in order to receive payment, unless that person specifically contracts to use an alternate form.  The bill further mandates that any provision in a waiver or release that is not directly related to the release is not enforceable, unless otherwise specified in the contract.  The aim is to provide an additional layer of protection to lower-tiered workers against the often more sophisticated owners and developers of a property. 

The proposed bill also removes the requirement that subcontractors, laborers and materialmen serve multiple claims of lien for separate contracts.  The effect of the bill would allow a person to record a single claim of lien for multiple services or materials for multiple contracts and multiple properties as long as the contracts are with the same owner.

The current version of the bill has passed through both the Business and Professions and Civil Justice Subcommittees, and is now before the Commerce Committee in the Florida House of Representatives.

Chapter 558 Construction Defect Statute Revisions – HB 295

Section 558, Florida Statutes has been the topic of much debate since its adoption in 2003. The statute outlines a mandatory procedure for property owners and homeowners associations prior to the filing of a lawsuit against a contractor for construction defects.  Parties on both sides have voiced concerns regarding the statutory framework, and the Florida Legislature has been compelled to take action.

House Bill 295, as initially presented, constituted a drastic departure from the current statute.  Specifically, the bill required parties to enter into pre-suit mandatory non-binding arbitration regarding the alleged construction defects.  The bill further required owners to execute a repair contract to remedy the defects prior to a settlement or final judgment.  Such a settlement or judgment would then be reduced to no more than the full contract price of any future repairs to the property.

However, on January 29, 2020, the House Civil Justice Subcommittee adopted a strike-all amendment removing many of the above changes before voting to pass it out of the committee.  The bill, as it currently stands, provides a more reasoned approach which presents a more incremental change to the statute.  Even so, the proposed legislation faces an uphill battle in this 2020 session.

First, the amended bill prohibits a claimant from filing a notice of claim unless he has first submitted a warranty claim for the specific defect at issue, and the warranty provider has denied the claim.  Further, the notice of claim must contain additional specific information regarding the alleged defect, including its location, a photograph and a detailed description of the issue. The claim must contain an affirmation of personal knowledge by the claimant of the defect(s), and must be signed under penalty of perjury. In regard to secondary respondents (subcontractors, suppliers, etc.) the proposed amendment puts the responsibility on the claimant, rather than the contractor, to notify these parties of the alleged defects. 

Finally, and perhaps most problematic, the bill includes a requirement that any jury verdict and final judgment issued in a construction defect claim include a detailed description of the nature of the defect(s), and the monetary amount awarded separately against each party.  The verdict and judgment must also specifically attribute monetary amounts to 1) repairing or replacing the party’s defective work, 2) repairing or replacing other non-defective property damaged by the defective work, and 3) other damages awarded against the party.

The stated aim of House Bill 295 is to reduce fraudulent construction defect claims, resulting in savings for both homebuilders and contractors, along with decreased litigation costs.  At this time, based on significant objections by both sides of the issue, the bill will likely not survive the subcommittee stage. However, the debate is sure to continue, and will be the topic of much discussion leading up to the next legislative session.

 Conclusion

Cobb & Gonzalez will continue to monitor these and other potential changes to current laws impacting the construction industry in Florida as the legislative session draws to a close. Thank you for reading our 2020 legislative update. 

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