What is the duration of a payment bond? Maschmeyer Concrete Company of Florida v. American Southern Insurance Company. United States District Court, Middle District, Florida (2016), by Hugh Anderson

The City of Orlando solicited bids for concrete repair and construction. The initial term of the contract was one year, but the City could renew the contract for additional terms up to five years total. The contractor was required to provide a payment bond.

The payment bond that the contractor furnished contained an express warning that the term of the bond was only one year, and that regardless of the renewal of the contract (possible extensions into years 2 through 5), the bond would expire after the first year. This wording became an issue when the city did renew (extend) the contract, and Maschmeyer supplied concrete to the project in the later years but was not paid for it. Maschmeyer submitted a claim on the bond, and the surety denied the claim based on the bond provision purporting to end its term after the first year. The dispute was adjudicated in federal court.

Decision: The court noted that the governing Florida bond statute states that any clause in a bond that attempts to limit or expand the effective duration of a bond on a public project is unenforceable. The court interpreted “effective duration” to mean a bond duration that is the same as the full term of the public works contract that the bond supports. But was that term one year, with possible independent renewals, or a maximum five-year continuous term? The court found it compelling that the work was only bid once, suggesting that there was but one contract and  one contract term: up to five years. If the city had bid out the next phase of work after each one-year segment, then it would have been logical to view the bond as a one- year bond. Such was not the case, and the court required the surety to pay the claimant in an amount to be determined.

Comment: EJCDC’s standard payment bond, C-615, does not have an express duration. An action on the bond must be brought within one year of the time a claim is filed or one year from the last provision of labor and materials by the claimant “under the Construction Contract,” whichever is earlier. The EJCDC bond also specifies that the surety waives notice of any changes of the contract time, and clarifies that if the bond is furnished in compliance with a public bond statute, any provision in the bond that is contrary to the requirements of the statute is to be disregarded. These provisions would support the same result reached in the Florida case, assuming that the claimant pursued its rights in a timely fashion.

You may also like

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}