I Sent my Notice of Nonpayment (Bond Claim), Why Won’t the Surety Pay me Already? - Webinar

This blog was taken from a webinar presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. We will break down the requirements for you to secure your rights to get paid, then we will talk about why the surety has not paid you.

What are the bond claim deadlines?

Let us go over what the bond claim deadlines are so that you understand what the requirements are in order to secure your rights. So, Step one is to understand that you have to break down bond claim rights into two major categories.

1. Private Bonded Projects

This is where an owner or a lender has required that the contractor issue a payment bond. So, that could be a condominium or a warehouse.

General Rules

With respect to private bonded jobs, the general rules are the following:

a. If in contract with the private bonded prime contractor

i. No Notice to Owner or Notice to Contractor needed

Let us assume you are the plumber on a condominium project, and that contractor provided a payment bond. You do not need to send that first notice which is called the Notice to Owner. If you have lien rights it is also referred to as a Notice to Contractor on bonded jobs. When you use SunRay, we use what is called a combined form. So, at the top if you have not seen the form, it will say Notice to Owner/Contractor.

What this does is, it covers bonded jobs and jobs where you have lien rights. So, one form covers them all.

Coming back to the example of the plumber to the bonded contractor on the private job, you do not need to send a Notice to Owner/Contractor. The reason is very simple, because the contractor knows you are on the job, so you do not need to notify the contractor if you are on the job. That being said, you are strongly encouraged to notice all of your jobs timely.

We advise you to set up a process in your office that any job over a certain dollar threshold gets noticed. You do not need to try to figure out if you need to notice one job or the other. If you have a job and it’s over an amount of let us say, $500 or $2,500, whatever number you decide for your business is appropriate, you should have notices send on those jobs.

If you are not implementing that rule and you begin to implement that rule, your collection percentage will go up. You will do much better at collecting if you just implement the one rule.

ii. Notice of Nonpayment within 90 days of your last work/delivery of materials

On a private job, you need to send what is called a Notice of Nonpayment or a bond claim notice no later than 90 calendar days from your last work or supply of materials on the job. Remember that 90 days is not three months. The 90 days includes all calendar days starting from the day after the last day of work.

Now, let us say you are a material supplier, and you deliver materials to the job site today. You should start counting the 90 days. Tomorrow is Day 1, and you count every day, including weekends and legal holidays through the 90 days. If the 90th day falls on a day that the court is closed or the mail does not run, then you roll it to the next business day.

So, if your 90th day lands on a Saturday, then you roll it to Sunday, then to Monday, and if Monday is a legal holiday, then you roll it to Tuesday. That is how you count the 90 days for your Notice of Nonpayment.

iii. File suit on the bond within 1 year from your last work/delivery of materials

Next, you have to file a lawsuit against the bonded surety no later than one year from your last date of either furnishing materials or services to the job site.

So, these are the general rules if you are working on a private bonded project and you have a direct contract with the bonded contractor.

If you are on a private job and your contract is further down, like if you are a supplier to a subcontractor, or for example a supplier to a plumber, you need to now send that Notice to Owner/Contractor.

b. If not in contract with the private bonded prime contractor

i. Notice to Owner/Contract must be sent

It should be sent no later than 45 days from your first work or first delivery of materials to the project.

This is the latest deadline for that notice to be received by the contractor and the surety. So, you cannot send it on the 44th day because it is not going to get there on time via certified mail. it needs to be received no later than that 45th day.

At SunRay, we use what is called a manifest, where we keep track of all the mail that goes out every day, and we get it stamped by the post office. If we do that by the 40th day, then it is deemed delivered even if it never actually arrives there at all, or on time.

Ensure that you get us copies of your notice requests early, so that you can get it to the post office by the 40th day.

ii. Notice of Nonpayment within 90 days of your last work/delivery of materials

The Notice of Nonpayment must be sent no later than 90 days from your last work on the job.

iii. File suit on bond within one year from your last work/delivery of materials

You have to file your lawsuit no later than one year from your last date of supplying materials or work to the job site.

iv. Check for subcontractor bonds

Something to keep in mind is that we see people make mistakes on routinely, is if you are working for a subcontractor. That subcontractor may actually have a bond, and this is handy if you are a sub-subcontractor or a material supplier to the subcontractor. That subcontractor bond may not be recorded in the public record, and you may have rights against that bond.

Even if you miss some or all of the deadlines mentioned above, like if you did not need to send a Notice to Owner, you did not send a Notice of Nonpayment, or you did not file suit within a year, you may still have rights against the subcontractor’s bond.

The way you can find out if the subcontractor on your project has a bond is by asking them. They may not tell you, but you can ask the general contractor if the subcontractor has a bond. The general contractor will have received a copy of the bond and tell you if the subcontractor is bonded.

Now you may think to yourself that there is no way that if the contractor does not have a bond that the subcontractor will have a bond. But this is not true. It is not common, but it is not uncommon either.  

For example, there is a subcontractor who is a fire sprinkler contractor on a significant job. The fire sprinkler contractor’s job is a million dollars, and he has a Performance and Payment Bond on the job, but the general contractor does not. So, if you are a sub-subcontractor to that bonded subcontractor, or you were supplying materials, you would potentially have lien rights on the project. But additionally, you would have a claim on that subcontractor’s payment bond.

So, if you are either a sub-subcontractor or a supplier to a subcontractor, know that the person who hired you may have a bond and it is worth checking. Because that is another place where you may be able to get paid.

2. State Public Bonded Projects

Now we will go over public projects because the rules are slightly different.

General rules

a. If in contract with the state public bonded prime contractor

i. No Notice to Owner/Contractor needed

If you have a direct contract with the bonded contractor on a public project, you do not need to send a Notice to Owner. Again, it is strongly recommended that you do it, but you do not have to.

ii. No Notice of Nonpayment is needed

Now, this next step is going to surprise you. You actually do not even need to send a Notice of Nonpayment if you are directly doing work with the bonded contractor on a public job.

For example, if you are the electrician on a public project, like on a public school in the Miami-Dade County, and that job is bonded, you do not need to send the first 45-day Notice to Owner and you do not even need to send the contractor a Notice of Nonpayment. But again, you should still do it, but you do not have to in order to preserve your rights.

iii. File suit on the bond within 1 year from your last work/delivery of materials

The only requirement is that you file a lawsuit on that bond no later than one year from your last work or delivery of materials to the job site. And even then, if you are owed just retainage on a public job on a public job where are you contracted directly with the bonded contractor. You may still have even more time.

Again, you should not wait that long, but these are some of the exceptions that exists in the lien law that you should be aware of.

b. If not in contract with the state public bonded prime contractor

Now what if you do not have a contract with the bonded contractor, what if you are a sub-subcontractor or a supplier to a subcontractor on a project? All of the rules kick in now that you are familiar with.

i. Notice to Owner must be sent within 45 days of your first work/delivery of materials

If you are the supplier to the electrician on a bonded public job, you need to send your Notice to Owner/Contractor no later than 45 days from first work on the job.

ii. Notice of Nonpayment within 90 days of your last work/delivery of materials

You need to send your Notice of Nonpayment no later than 90 days from your last work.

iii. File suit on the bond within 1 year from your last work/delivery of materials

And you have to file your lawsuit no later than one year from your last work or delivery of materials to the job site.

iv. Check for subcontractor bonds

Just as for public jobs that may be bonded, that subcontractor may also have a bond and that is an important place to look. Now, all of the rules mentioned here are important and there are some exceptions to the rules for when you need to send these notices. So, keep them in mind. Sometimes if you think that maybe you do not have lien rights or bond rights, you may still in fact have those rights.

I Sent My Notice of Nonpayment to the Surety. What is Next?

Now we will talk about what happens when you send your claim to the surety.

1. The Notice of Nonpayment only starts the process

The Notice of Nonpayment only starts the process. If you have gone through this process, this will sound familiar. You prepare your Notice of Nonpayment and it is submitted to the surety.  

2. Claimants receive a letter asking for information and “Proof of Claim”

Then within a couple of days, the surety will send you a letter acknowledging the receipt of your claim, ask you to fill out a Proof of Claim, and provide backup.

3. No obligation in Florida to provide POC

Know that there is no obligation in Florida to provide a response to that letter or to provide that Proof of Claim.

4. In most instances, do not provide the POC

In most instances, our advice (not in every instance) is not to provide that Proof of Claim. The reason is because providing that information is used by the surety not as a way to pay the claim, but as a way to not pay the claim.

For example, when you fill out that Proof of Claim, you will fill in when your first work was, when your last work was, when you signed the contract, when you sent all the bills, and they may find that you needed to have sent the Notice to Owner/Contractor within 45 days and that they did not actually get it until the 48th day.

So, they may use things like that as a reason to deny the claim. This is why we recommend that you do not provide that information since providing it usually does not get you paid.

5. Most sureties will not pay you voluntarily until the principal pays you first

Most sureties will not be willing to pay you unless their principal or the contractor agrees to pay. Behind the scenes, when you pay your Notice of Nonpayment to the surety, the surety typically sends two letters. They send one letter to you acknowledging the claim and ask you to provide backup for the Proof of Claim. At the same time, they are providing a letter to the contractor letting the contractor know that they received the claim and to tell them what the contractor thinks.

The contractor may write back to them and say they don’t agree that you should be paid, that they have not been paid by the owner, there were issues with the work, or that they did not respond at all.

The reason this is interesting is because the surety is not insurance. It surprises a lot of people when they hear that a surety bond Florida is not insurance. When you have a car accident, your insurance company writes a check to resolve the claim to fix your car and/or to fix the other person’s car all within the guidelines of the policy. That is unrelated to your obligations to the insurance company.

This means that they are not going to write a check for $30,000 because you totaled the car, and then come back to you and ask to be paid $30,000 for the check they wrote to fix your car. That is not how insurance works, but it is how suretyship works.

This means that when the surety writes a check to pay your claim, like if you are owed $30,000, and they write you a check to pay that claim, they go back to the contractor who they issued that bond for and they let the contractor know that they had to pay the supplier $30,000. They then tell the contractor to pay them back that $30,000.

So, it is an indemnity product meaning the party that gets the bond issued, the contractor, indemnifies the surety. They have to pay back the surety for any losses that they suffer. When we say that the surety typically only wants to pay what the contractor/principal is willing to pay, it is because that is who they are going to look to, to get reimbursed.

If the contractor was not willing to pay you in the first place, then the surety is typically not going to pay you, because that is who they are going to go back and have to get reimbursement from.

6. Watch out for shortening of your claim period

You need to be careful about any document you receive that shortens your claim period. There are ways for the contractor to shorten the time you have to file that lawsuit. You have a year, but there are documents you can receive that shorten that time. You can get them via certified mail which is called a Notice of Contest of Lien. That brings the claim down to 60 days, so be careful about waiting too long.

7. Watch out for the surety waiting you out

Watch out for the surety waiting you out. For example, there was a subcontractor who was not paid on a project. He submitted a Notice of Nonpayment and the surety wrote back asking him to fill out a Proof of Claim which he did. He timely submitted that, and surety wrote back thanking him for the information. He was told they would get back to him after reviewing the claim.

As mentioned above, you have one year from your last work to file that lawsuit. Unfortunately, the subcontractor just assumed that the surety was acting in good faith. Every few months the subcontractor would ping the surety and ask what was going on with the claim, and the surety would have some reason or the other for not reverting, like reaching out to the owner or to the contractor, and said they’d get back to him.

This went on for more than a year, about 13 to 14 months after the subcontractor’s last work. He then received a letter from the surety saying that they concluded their investigation and that they determined the time period for them to bring the claim was over, and that it was rejected.

So, what happened here is, the surety waited out the other party for their claim over a one-year period. You have to be very careful that you don’t think the surety is trying to get you paid. Always recognize that the surety is trying not to pay you.

When Will they Pay Me?

Now we will talk about when you will get paid and how you can increase the chance of them paying you.

1. Practice the 60-60 rule

It is strongly recommended that you start the lien or bond process roughly 60 days from your last work. Do not wait till the 84th day or 88th day to record a lien or to send a Notice of Nonpayment. At about Day 60 is when you should start thinking about getting your lien or bond claim secured. So, this is when you should start putting together all the paperwork, get your lien or bond recorded and served. That is the first 60.  

2. 60 days from last work to submit the Notice of Nonpayment

The next 60 is for the 60 days after you record your lien or serve your Notice of Nonpayment. You should actively work to try to get paid.

3. For 60 thereafter hassle your customer and the surety for payment

Hassle your customer, call the surety every other day, call the contractor, send emails and letters, just really be a thorn in people’s side to try and get paid.

4. Submit the claim to a construction lawyer for collection

In those 60 days after you send your Notice of Nonpayment or after you lien, if you have still not made progress to get paid, that is when you should submit your claim to a construction lawyer for collection. Don't wait, because it will not get you paid any faster.

5. Except for business reasons, do not delay

The one exception to this is if you have some business reason to wait. Like if you submit a Notice of Nonpayment, it is only worth $8,000, you are doing four other jobs with the same contractor, and everything is going well. You may then decide to let it sit because you are doing well on the other ones, and you know you are going to get paid.

So that is a business decision that you get to make, but just remember that waiting and hoping is not a good collection strategy.