Contractors and Owners in Florida Beware: Higher Interest Rates and Increased Penalties for Withholding or Misapplying Construction Funds

On July 1, 2021, Florida Senate Bill 378 takes effect and amends a number of Florida Statutes governing prompt payment on various types of Florida construction projects.  These changes to Florida law result in increased penalties for withholding or misapplying construction funds by increasing interest rates on overdue balances and mandating the suspension of construction licenses.  These changes apply to any construction contracts executed on or after July 1, 2021.

Outstanding Balances On Construction Projects Will Be Subject to Higher Interest Rates

• For public construction projects: interest rate increase from 1% to 2% per month or the rate specified by contract, whichever is greater.

Previously, on qualifying Florida public construction projects, the minimum interest rate on outstanding or overdue funds was 1% per month. See Section 218.735, Florida Statutes; See also Section 255.073 Florida Statutes. By amending Section 218.735, and Section 255.073, Senate Bill 378 sets the minimum interest rate on these qualifying public construction projects to 2% per month. The amendments to Section 255.073 specifically provide that, any contractual obligations for undisputed work are immediately due and owing, and that both the funds that are in dispute, and any unpaid undisputed funds, are subject to the increased 2% per month minimum interest rate.

• For private construction projects: interest rate increase to the statutory interest rate, plus 12% per annum, or the rate specified by contract, whichever is greater.

Florida Senate Bill 378 additionally impacts private construction projects by amending Section 715.12, Florida Statutes to increase the interest rate on overdue payments by the statutory interest established by the Chief Financial Officer in accordance with Section 55.03 of the Florida Statutes, plus 12% per annum. The statutory interest rate beginning July 1, 2021 is 4.25% per annum and, thus, the increase will result in an interest rate of 16.25% per annum. See Section 715.12.  However, a party seeking to collect interest on unpaid amounts will not be entitled to receive both the contractual amount of interest and the statutory interest provided in the statute. Id.

Regardless of whether a contractor is working in the public or private sector,  Florida Senate Bill 378’s amendments to Florida’s construction statutes increases the financial penalties for entities and individuals who do not pay funds due, by increasing the interest rates applicable to overdue construction debts.

Failing to Pay Outstanding Balances On Construction Projects Can Severely Impact Construction Licenses

Florida Senate Bill 378 also amends Section 489.129, Florida Statutes by adding an additional and increased penalty for contractors who fail to pay construction debts that are due and owing. The amendment provides that if a person licensed by the Construction Industry Licensing Board is convicted of the misapplication of construction funds, the disciplinary board can issue any penalty warranted and “must suspend all licenses issued to such licensee . . . for a minimum of 1 year from the date of conviction.”

Previously, under Florida law, to prove a knowing and intentional misapplication of construction funds and, therefore, be subject to penalty, a party was required to show how the funds were used or misapplied. See Weber v. State, 649 So. 2d 253 (Fla. 2nd DCA 1994).

Once Florida Senate Bill 378 takes effect, a misapplication of construction funds is demonstrated by improperly withholding payment of due and owing funds. The resulting penalty for misapplication (the suspension of the party’s construction license for a minimum of one year from the date of conviction) is significant. Thus, parties facing allegations of misapplication of construction funds should be incentivized to vigorously contest the allegations or make timely payment.

Contractors and owners must be aware of these changes to these prompt payment statutes.  Failing to understand and comply with these statutes can have serious consequences.  These statutory amendments should apply increased pressure on  those who improperly withhold funds on Florida construction projects, while, at the same time, better protecting those who have not been promptly paid for their work.

Authors:

• James O. “Joby” Birr, Esq.
• Zachary Pestcoe, JD Candidate 2022