“PAY WHEN PAID”
“Pay when Paid” contract clauses are commonly contained in construction contracts. A “Pay when Paid” clause protects the contracting party from paying downstream subcontractors and suppliers when the contracting party is not paid from its upstream contracting party. In this scenario, the downstream contracting party’s remedies would be limited to actions against the owner’s property pursuant to the Construction Lien Law. Strict compliance with the Construction Lien Law is a must.
What if you are also required to provide a payment bond on the project? Florida law provides for two different types of construction payment bonds: a standard payment bond under Section 713.24, Florida Statutes, and a conditional payment bond under Section 713.245, Florida Statutes. The conditional payment bond prevents claims against your payment bond in the event of nonpayment if your contract has a valid pay when paid clause.
Section 713.245, Florida Statutes requires a conditional payment bond to comply with the following:
- The bond must be listed on the Notice of Commencement as a “conditional payment bond” and recorded in the public records with the Notice of Commencement.
- The words “conditional payment bond” must be included in the title of the bond at the top of the front page.
- The bond must contain on the front page in at least 10-point type the statement:
THIS BOND ONLY COVERS CLAIMS OF SUBCONTRACTORS, SUB-SUBCONTRACTORS, SUPPLIERS AND LABORERS TO THE EXTENT THE CONTRACTOR HAS BEEN PAID FOR THE LABOR, SERVICES, OR MATERIALS PROVIDED BY SUCH PERSONS. THIS BOND DOES NOT PRECLUDE YOU FROM SERVING A NOTICE TO OWNER OR FILING A CLAIM OF LIEN ON THIS PROJECT.
The construction lien law provides protection to both the owners and contractors. Remember, the lien law must be strictly complied with. Should you have any questions or concerns regarding the Florida Construction Lien Law, Kirwin Norris, P.A. stands ready to assist.
