In the News

August 1, 2019

July CMI Hurts Vision of Positive Trend

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Florida Notice of Nonpayment to Change Oct. 1

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Automating Construction Payments Helps ‘Maintain Good Relations’

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Federal Reserve Drops Interest Rates—What Signal Does This Send to Creditors?

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July CMI Hurts Vision of Positive Trend

The latest Credit Managers’ Index (CMI) from NACM has cooled off during the summer after back-to-back gains in April and May. The CMI has now seen two straight months of declines for the first time since December and January. The July index slipped 1.6 points to 53.4, the lowest mark since January (also 53.4).

“Here we are at the mid-point of the year and the data still points to a decent growth rate for the U.S. economy,” said NACM Economist Chris Kuehl, Ph.D. “The worrisome part is that some of the more reliable future indicators, including the CMI, are starting to falter.”

Much of the despair for credit managers was in dollar collections, which dropped 3.7 points to 56.6, and it was paired with the sharp slide in accounts placed for collection on the unfavorable side. Sales, new credit applications and amount of credit extended also fell, with new credit applications the only score to remain in the 60s. Overall, the combined favorables dipped from 61.4 in June to 58.6 in July, its lowest score since October 2016. “There is simply not as much credit on offer these days,” Kuehl said, referring to amount of credit extended.

While not optimistic, several of the combined unfavorables showed promise in July. Rejections of credit applications, disputes and dollar amount of customer deductions each improved this month, with disputes jumping back into expansion territory (score over 50) for the first time since November 2018. Accounts placed for collection fell into the contraction zone, which has been the norm for the past 12 months. On the whole, combined unfavorables dropped to a score of 50 for the second time in four months.

The manufacturing sector was haunted by two large drop offs in dollar collections and amount of credit extended. Sales and new credit applications also tumbled this month, albeit at a slower pace, to have the favorable factors settle at 56.7. Accounts placed for collection and dollar amount beyond terms both returned to contraction territory, while disputes and dollar amount of customer deductions both leaped into expansion territory, the latter for the first time since September 2016.

The index was much of the same in the service sector—favorables dragging the scores down, and unfavorables trying to balance out the losses. Despite the declines in each of the four favorable factors, the overall index for favorables remained above 60 for the fourth straight month. Rejections of credit applications and disputes both improved, with disputes back at a score of 50. Accounts placed for collection and dollar amount beyond terms both fell further into contraction territory, while dollar amount of customer deductions entered the contraction zone. Overall, unfavorables returned to the contraction zone after back-to-back months in expansion territory.

“This was most definitely a down month and one that was led into these doldrums by the manufacturing sector,” Kuehl concluded. “The service side was more mixed, but retail doesn’t appear to be as healthy as preferred as it prepares to enter the all-important holiday period.”

—Michael Miller, managing editor

Florida Notice of Nonpayment to Change Oct. 1

“Lost time is never found again,” wrote Benjamin Franklin as Poor Richard in his “The Way to Wealth.” “One today is worth two tomorrows … never leave that till tomorrow, which you can do today.” While procrastination is often rampant in all aspects of life, the construction industry should not be one of them. Strict rules and guidelines adhered to during the construction project will help construction creditors, material suppliers and others in the supply chain get paid.

Time is of the essence in the construction industry with many states having vital timeframes that must be followed. Florida is part of the rule rather than the exception when it comes to documentation that must be completed within a certain timeframe. While the number of days, or the timeframe, is not changing in Florida, there are changes going into effect that bond claimants need to take notice of soon.

Approved by Gov. Ron DeSantis in June, House Bill 1247 will take effect on Oct. 1, 2019. The new law amends several sections of the Florida statutes relating to construction bonds and actions by claimants. “The change really isn’t all that drastic,” said Timothy R. Moorhead, Esq., with Wright, Fulford, Moorhead & Brown, which is just north of Orlando.

Surety bonds are another way for those working on a construction project to have some sort of security when providing material, services or labor to a construction project. “Some private owners require payment bonds from their contractors, thereby insulating their property from liens of subcontractors and suppliers because you cannot lien public property, and public projects over a certain dollar value are required to be bonded. These bonds are a substitute security for those who would otherwise look to obtain a construction lien,” said Moorhead. The new law aims to make bond requirements similar to those for a construction lien. “There are certain provisions related to fraudulent construction liens that previously had no parallel provision where you were dealing with a bonded job. What this law does is more closely align the laws relating to the notice of nonpayment with provisions relating to construction liens.”

The first change relates to the form the notice of nonpayment itself must take: Currently, a claim of lien is a sworn document whereas a notice of nonpayment is an unsworn document. The notice of nonpayment is currently nothing more than a letter. The change that House Bill 1247 provides is to the form that must be substantially followed for notices of nonpayment served under Florida Statutes Chapter 255 (public work) and Florida Statutes Chapter 713 (private work). In each instance, the form of the notice is provided within the bill and the document is now to be executed “under oath” and “served” rather than “delivered.”

The new notice of nonpayment form requires more detail about what you are owed, what you have been paid and what you are expecting to be paid in the future on the job. The notice of nonpayment also extends to rental equipment that was on the job site and available for use. If the notice of nonpayment includes sums for retainage, it must specify the portion of the amount claimed for retainage.

Now that the notice of nonpayment will be required to be made under oath, there are certain penalties that may attach for errors, said Moorhead. While minor “negligent” errors that do not prejudice the contractor or surety will not defeat an otherwise valid bond claim, a fraudulent notice of nonpayment will be unenforceable. Claimants who serve fraudulent notices of nonpayment will forfeit their rights under the bond, states the new law, which continues with a list of items that constitute a fraudulent notice.

Examples of fraudulent information include a claim for work not performed or gross negligence as to the amount; a willful exaggeration will be considered as fraudulent, resulting in a loss of bond rights. This helps even the playing field for lien and bond claimants.

What most of the changes are about is to more closely align the concept of a fraudulent notice of nonpayment with the existing statutes dealing with fraudulent claims of lien. “Now the notice of nonpayment has to be sworn, so it takes the form of an affidavit. If it is erroneous or fraudulent, then there are consequences. There were also a couple of other cleanup things with vocabulary throughout the bill,” said Moorhead.

The amendment also substitutes the term “serve” for terms such as “deliver” and “furnish” when dealing with notices relating to bonded jobs. This again helps align those provisions with the existing provisions relating to service of the notice to owner found in Florida’s Construction Lien Law. How “service” is accomplished is defined in Chapter 713 of the Florida Statutes and should end arguments of the applicability of the “mailbox rule” for these notices, said Moorhead. The effect of these changes essentially shortens the time in which a claimant must act to assure proper compliance with the new statute. “This will effectively shorten timeframes – actually getting the notice of nonpayment delivered within the timeframe rather than just sending it within the timeframe is required,” said Moorhead. This is all while the 45-day and 90-day timeframes will not change.

“Instead of lawyers being able to sign a notice of nonpayment for their clients, an attorney will have to send it to the claimant so the claimant can sign it under oath. It just adds time to handling the claim.” said Moorhead.

The moral of the story here is to heed Benjamin Franklin and do these notices earlier rather than later.

To learn more about these Florida statutory changes impacting construction bond claims, join Timothy Moorhead, Esq., as he leads the Florida Statutory Changes Impacting Construction Bond Claims webinar on Aug. 21 at 3 pm EDT.