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How government construction projects compare to private sector: 8 key differences

Construction projects involving local governments can be minefields. It's an entirely different ballgame than the private sector. When it comes to successfully navigating these contracts, understanding the differences is key.

A recent article in the Florida Bar Journal highlighted what contractors bidding on projects in the local government sector should know:

1. Bonding: Construction liens aren't available for government projects. Florida law simply doesn't allow for them. Instead, contractors must either secure a private surety bond - which must be recorded - as a source of recovery for unpaid parties, or put up some other type of security (cash, an irrevocable line of credit, etc.).

2. Payment: The law also establishes firm deadlines for payments by government entities. Typically, they must pay contractors within 25 days of receiving a payment request. If the contracting government agency intends to reject or dispute payment, it must do so within 20 days of receiving a payment request. Similarly, contractors have a 10-day deadline after receiving payment to pay their subcontractors, and subcontractors have 7 days to pay sub-subcontractors.

3. Retainage: The government can withhold up to 10 percent of each payment until half of the work is done. After that, it can withhold up to 5 percent. Limits also apply to contractors' retainage of payment from subcontractors. The statute outlines when and how contractors (and subs) are entitled to payment of the retainage.

4. Dispute resolution: Most local government ordinances call for an administrative out-of-court dispute resolution process. This process might involve the city council, county commissioner or county administrator. Appeals are often extremely limited, and court review may generally only be obtained through a writ of certiorari. Contractors should be aware of the dispute process and ensure that it's satisfactorily outlined in the contract.

5. Potential for getting "blacklisted": Local purchasing ordinances often establish "grading" systems to review contractors' performance. Those who don't measure up could potentially get barred from future projects. While this "blacklist" is limited to government bidding, it can damage contractors' reputations, impacting their ability to get work in the private sector as well.

6. No damages for delay: These clauses are more common in government contractors. They usually allow for a time extension, but no increase in pay. This means contractors can end up shouldering losses for delays on the part of the government.

7. Sovereign immunity: Local government entities are immune from equitable claims and remedies - that is, those not based on contract or statute. In the construction context, immunity can become a big deal when a contractor supplies extra materials or performs extra work beyond the scope of the contract. The government can't be held liable under equitable theories like unjust enrichment or implied contract. As a result, contractors should take care to adhere to the express contract. Should changes or amendments become necessary, these should be documented in the manner specified by the contract.

8. Public Records: The Florida Public Records Act covers construction-related records for local government projects. Contractors may be required to make such records available for public review at the government's request. The scope of the law on this issue is complicated, and it can quickly become an administrative and business burden. Failure to comply can lead to civil and even criminal penalties.

Despite the challenges involved in government contracting, for many in the construction industry, it's nonetheless a lucrative field. Ongoing legal guidance is critical for avoiding the many pitfalls that can arise in these projects.

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