Construction Update – “Effective Duration” of a Statutory Bond Must Correspond to the Full Term of a Public Works Contract

August 9, 2016 by on News

In 2012, the Florida Legislature amended Section 255.05(e), Florida Statutes, to prohibit any provision of a statutory bond that “limits or expands the effective duration of the statutory bond.” This statute was recently interpreted by the Middle District of Florida in Maschmeyer Concrete Co. v. American Southern Ins. Co., Case No. 6:15-cv-912-Orl-37KRS (M.D. Fla. July 12, 2016).

After the General Contractor, Conpilog International Co. (the “GC”), refused to pay for materials, Maschmeyer Concrete Co. (the “Concrete Supplier”) filed suit against the GC’s surety, American Southern Insurance Co. (the “Surety”), attempting to recover on the public construction project bond (the “Bond”).

The Concrete Supplier claimed it was entitled to money under the Bond as it delivered materials to the GC during the “effective duration” of the Bond. The Surety argued the “effective duration” of the Bond had lapsed by the time the Concrete Supplier began to deliver materials to the Project. Both the Concrete Supplier and the Surety filed competing motions for summary judgment on this issue.

In analyzing the motions, the Middle District of Florida noted several facts were relevant in analyzing this issue.  To begin, the Invitation for Bid specified:

[t]he term of the contract resulting from this solicitation, shall be for an initial twelve (12) month period. The Contract may, by mutual assent of the parties, be extended for four (4) additional twelve (12) month periods or portions thereof, up to a cumulative total of sixty (60) months.

The original contract was entered into between the City and the GC on December 1, 2011.  In July 2012, the City and the GC agreed to renew the contract for an additional one-year term.  In November 2012, the Surety issued the Bond to the GC.  The City and the GC renewed the contract again in 2013 and 2014, setting a final termination date of November 30, 2015.  The Concrete Supplier provided materials between April 29, 2014 and January 30, 2015.  The Bond defined the term of the Bond as being “a period of one year dated 12/1/2012 – 11/30/2013 (the “Bond Term”) regardless of contract language to the contrary.”  The Bond Term was never amended, nor was another bond issued to the GC when the Bond Term expired.

After hearing arguments from both parties, the Middle District denied the Surety’s Motion for Summary Judgment and granted the Concrete Supplier’s Motion, holding:

[t]he only reasonable interpretation of ‘effective duration’ of the Statutory Bond is a bond duration that corresponds to the full term of the Public Works Contract identified on the face of the Statutory Bond or incorporated by reference in the Statutory Bond.

Further, the Court held that as the Bond Term attempted to restrict the Bond’s “effective duration”, the Bond Term was unenforceable according to Section 255.05(e), Florida Statutes.

In light of this new case, it is clear that to be effective under the amended language of Section 255.05(e), Florida Statutes, bond terms must be equivalent to the full term of a public works contract, as identified on the face of the bond or incorporated by reference in the bond.

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Randy R. Dow
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