2024 Louisiana laws impact construction payments
Louisiana Governor Jeff Landry signed into effect two new laws reshaping payment protocol during construction projects and expanding on defenses afforded to sureties. The two laws grant sureties a new defense against nonpayment claims previously reserved for general contractors and detail a timeline for material suppliers sending notices for missed payments.
Why it matters: La. Acts Nos. 758 and 761 allow sureties to refuse payment when there is a “pay-if-paid” or “pay-when-paid” clause in the contract.
Whether tucked deep in within a contract or hidden within complicated language, pay-if-paid and pay-when-paid clauses can now be used as a defense by sureties to avoid paying nonpayment bonds to subcontractors. “Sureties are using these clauses as a defense: they know they should be paying you, but by contract, you’ve agreed that you’re not going to get paid unless they get paid,” said Chris Ring of Secured Transaction Services (STS).
Pay-if-paid clauses transfer nonpayment risk to lower-tier subcontractors. Credit professionals should look closely at contracts in Louisiana. To avoid issues, read contracts carefully and remove any pay-if-paid clauses. “The key is the contract language: wording like ‘condition precedent,’ ‘if and only if,’ and the like typically signal a ‘pay-if-paid’ clause,” said Attorney Daniel Lund III, head of the construction law practice of Phelps Dunbar in its New Orleans office. “Some courts in other states have gone so far as to require more exacting language, to the point where a contractor seeking to place a ‘pay-if-paid’ clause in a contract must overtly declare to the effect that the downstream contractor ‘bears the utter risk of owner [or other upstream party] nonpayment.’ In Louisiana, ‘pay-if-paid’ language can probably be more nuanced than that and, hence, subcontractor vigilance in negotiating and simply reading contracts is key.”
Material suppliers must wait 45 days from the date of delivery before they can send a notice of nonpayment to the general contractor, the surety and the owner. If the supplier has not been paid in full after 90 days, they can send a formal notice of nonpayment to the general contractor, surety and the owner, which will require a payment within 10 days of delivery.
Those with customers in Louisiana working on public construction projects should not only be aware of this law but also discuss possible outcomes of the legislation with their team to create the best plan of action going forward.
The bottom line: The new laws reshape payment protocols, allowing sureties to refuse payment based on “pay-if-paid” or “pay-when-paid” clauses and setting clear deadlines for material suppliers to send nonpayment notices.
Statute Changes
Florida Notice of Nonpayment to Change on October 1, 2019
“Lost time is never found again,” wrote Benjamin Franklin as Poor Richard in his “The Way to Wealth.” “One today is worth two tomorrows … never leave that till tomorrow, which you can do today.” While procrastination is often rampant in all aspects of life, the construction industry should not be one of them. Strict rules and guidelines adhered to during the construction project will help construction creditors, material suppliers and others in the supply chain get paid. Time is of the essence in the construction industry with many states having vital timeframes that must be followed. Florida is part of the rule rather than the exception when it comes to documentation that must be completed within a certain timeframe. While the number of days, or the timeframe, is not changing in Florida, there are changes going into effect that bond claimants need to take notice of soon. Approved by Gov. Ron DeSantis in June, House Bill 1247 will take effect on Oct. 1, 2019. The new law amends several sections of the Florida statutes relating to construction bonds and actions by claimants. “The change really isn’t all that drastic,” said Timothy R. Moorhead, Esq., with Wright, Fulford, Moorhead & Brown, which is just north of Orlando. Surety bonds are another way for those working on a construction project to have some sort of security when providing material, services or labor to a construction project. “Some private owners require payment bonds from their contractors, thereby insulating their property from liens of subcontractors and suppliers and because you cannot lien public property and public projects over a certain dollar value are required to be bonded. These bonds are a substitute security for those who would otherwise look to obtain a construction lien,” said Moorhead. The new law looks to make bond requirements like those of a construction lien. “There are certain provisions related to fraudulent construction liens that previously had no parallel provision where you were dealing with a bonded job. What this law does is more closely align the laws relating to the notice of nonpayment with provisions relating to construction liens.” The first change relates to the form the notice of nonpayment itself must take: currently, a claim of lien is a sworn document whereas a notice of nonpayment is an unsworn document. The notice of nonpayment is currently nothing more than a letter. The change that House Bill 1247 provides is to the form that must be substantially followed for notices of nonpayment served under Florida Statutes Chapter 255 (public work) and Florida Statutes Chapter 713 (private work). In each instance, the form of the notice is provided within the bill and the document is now to be executed “under oath” and “served” rather than “delivered.” The new notice of nonpayment form requires more detail about what you are owed, what you have been paid and what you are expecting to be paid in the future on the job. The notice of nonpayment also extends to rental equipment that was on the job site and available for use. If the notice of nonpayment includes sums for retainage, it must specify the portion of the amount claimed for retainage. Now that the notice of nonpayment will be required to be under oath, there are certain penalties that may attach for errors, said Moorhead. While minor “negligent” errors that do not prejudice the contractor or surety will not defeat an otherwise valid bond claim, a fraudulent notice of nonpayment is will be unenforceable. Claimants who serve fraudulent notices of nonpayment will forfeit their rights under the bond, states the new law, which continues with a list of items that constitute a fraudulent notice. Examples of fraudulent information include a claim for work not performed or gross negligence as to the amount; a willful exaggeration will be considered as fraudulent resulting in a loss of bond rights. This helps even the playing field for lien and bond claimants. What most of the changes are about is to more closely align the concept of a fraudulent notice of nonpayment with the existing statutes dealing with fraudulent claims of lien. “Now the notice of nonpayment has to be sworn, so it takes the form of an affidavit. If it is erroneous or fraudulent, then there are consequences. There were a couple of other cleanup things with vocabulary throughout the bill,” said Moorhead. The amendment also substitutes the term “serve” for terms such as “deliver” and “furnish” when dealing with notices relating to bonded jobs. This again helps align those provisions with the existing provisions relating to service of the notice to owner found in Florida’s Construction Lien Law. How “service” is accomplished is defined in Chapter 713 of the Florida Statutes and should end arguments of the applicability of the “mailbox rule” for these notices, said Moorhead. The effect of these changes essentially shortens the time in which a claimant must act to assure proper compliance with the new statute. “This will effectively shorten timeframes – actually getting the notice of nonpayment delivered within the timeframe rather than just sending it within the timeframe is required,” said Moorhead. This is all while the 45-day and 90-day timeframes will not change. “The practice change is that instead of lawyers being able to sign a notice of nonpayment for their clients, an attorney will have to send it to the claimant so the claimant can sign it under oath. It just adds time to handling the claim.” said Moorhead. The moral of the story here is listen to Benjamin Franklin and do these notices earlier rather than later. To learn more about these Florida Statutory Changes Impacting Construction Bond Claims join Timothy Moorhead, Esq., senior shareholder at Wright, Fulford, Moorhead & Brown, P.A., as he leads a webinar on August 21st at 3:00pm ET.
“Lost time is never found again,” wrote Benjamin Franklin as Poor Richard in his “The Way to Wealth.” “One today is worth two tomorrows … never leave that till tomorrow, which you can do today.” While procrastination is often rampant in all aspects of life, the construction industry should not be one of them. Strict rules and guidelines adhered to during the construction project will help construction creditors, material suppliers and others in the supply chain get paid. Time is of the essence in the construction industry with many states having vital timeframes that must be followed. Florida is part of the rule rather than the exception when it comes to documentation that must be completed within a certain timeframe. While the number of days, or the timeframe, is not changing in Florida, there are changes going into effect that bond claimants need to take notice of soon. Approved by Gov. Ron DeSantis in June, House Bill 1247 will take effect on Oct. 1, 2019. The new law amends several sections of the Florida statutes relating to construction bonds and actions by claimants. “The change really isn’t all that drastic,” said Timothy R. Moorhead, Esq., with Wright, Fulford, Moorhead & Brown, which is just north of Orlando. Surety bonds are another way for those working on a construction project to have some sort of security when providing material, services or labor to a construction project. “Some private owners require payment bonds from their contractors, thereby insulating their property from liens of subcontractors and suppliers and because you cannot lien public property and public projects over a certain dollar value are required to be bonded. These bonds are a substitute security for those who would otherwise look to obtain a construction lien,” said Moorhead. The new law looks to make bond requirements like those of a construction lien. “There are certain provisions related to fraudulent construction liens that previously had no parallel provision where you were dealing with a bonded job. What this law does is more closely align the laws relating to the notice of nonpayment with provisions relating to construction liens.” The first change relates to the form the notice of nonpayment itself must take: currently, a claim of lien is a sworn document whereas a notice of nonpayment is an unsworn document. The notice of nonpayment is currently nothing more than a letter. The change that House Bill 1247 provides is to the form that must be substantially followed for notices of nonpayment served under Florida Statutes Chapter 255 (public work) and Florida Statutes Chapter 713 (private work). In each instance, the form of the notice is provided within the bill and the document is now to be executed “under oath” and “served” rather than “delivered.” The new notice of nonpayment form requires more detail about what you are owed, what you have been paid and what you are expecting to be paid in the future on the job. The notice of nonpayment also extends to rental equipment that was on the job site and available for use. If the notice of nonpayment includes sums for retainage, it must specify the portion of the amount claimed for retainage. Now that the notice of nonpayment will be required to be under oath, there are certain penalties that may attach for errors, said Moorhead. While minor “negligent” errors that do not prejudice the contractor or surety will not defeat an otherwise valid bond claim, a fraudulent notice of nonpayment is will be unenforceable. Claimants who serve fraudulent notices of nonpayment will forfeit their rights under the bond, states the new law, which continues with a list of items that constitute a fraudulent notice. Examples of fraudulent information include a claim for work not performed or gross negligence as to the amount; a willful exaggeration will be considered as fraudulent resulting in a loss of bond rights. This helps even the playing field for lien and bond claimants. What most of the changes are about is to more closely align the concept of a fraudulent notice of nonpayment with the existing statutes dealing with fraudulent claims of lien. “Now the notice of nonpayment has to be sworn, so it takes the form of an affidavit. If it is erroneous or fraudulent, then there are consequences. There were a couple of other cleanup things with vocabulary throughout the bill,” said Moorhead. The amendment also substitutes the term “serve” for terms such as “deliver” and “furnish” when dealing with notices relating to bonded jobs. This again helps align those provisions with the existing provisions relating to service of the notice to owner found in Florida’s Construction Lien Law. How “service” is accomplished is defined in Chapter 713 of the Florida Statutes and should end arguments of the applicability of the “mailbox rule” for these notices, said Moorhead. The effect of these changes essentially shortens the time in which a claimant must act to assure proper compliance with the new statute. “This will effectively shorten timeframes – actually getting the notice of nonpayment delivered within the timeframe rather than just sending it within the timeframe is required,” said Moorhead. This is all while the 45-day and 90-day timeframes will not change. “The practice change is that instead of lawyers being able to sign a notice of nonpayment for their clients, an attorney will have to send it to the claimant so the claimant can sign it under oath. It just adds time to handling the claim.” said Moorhead. The moral of the story here is listen to Benjamin Franklin and do these notices earlier rather than later. To learn more about these Florida Statutory Changes Impacting Construction Bond Claims join Timothy Moorhead, Esq., senior shareholder at Wright, Fulford, Moorhead & Brown, P.A., as he leads a webinar on August 21st at 3:00pm ET.
