Provided courtesy of Sam K. Abdulaziz, Attorney at Law

As a result of the advocacy of subcontractor trade associations, with help from prime contractors, California now has a substantial body of law dealing with prompt payment. The prompt payment statutes are broken up into two different sections. One deals with private works of improvement and the other one deals with public works of improvement. The statutes deal with retention, and progress payments, as well as payments from the owner to the prime and the prime to the sub. Ahead, we will try to explain California's Prompt Pay Statutes.

Private Works of Improvement

Owner to Prime With respect to private works of improvement, the owner must make progress payments to the prime contractor within 30 days after receipt of the request for payment unless this is modified in writing. If the owner does not, the owner is subjected to paying a penalty of 2% per month in lieu of interest. In addition, the prevailing party in litigation will be entitled to attorneys' fees. If there is a dispute over the amount of the payment, the owner may withhold up to 150% of the amount in dispute.
With respect to retention, the retention must be paid by the owner to the prime contractor within 45 days after a certificate of occupancy or 45 days after a notice of completion depending on when the contract was entered into.

Again, if the owner fails to pay, there is a 2% penalty per month. In addition, the prevailing party in litigation will be entitled to attorneys' fees. If there is a dispute over the amount of the payment, the owner may withhold up to 150% of the amount in dispute. With respect to retention, unlike progress payments, it is against public policy to waive this portion of the prompt pay statute. Therefore a waiver will probably not be upheld.


Prime Contractors to Subcontractors With respect to progress payments, they must be made within 10 days of receipt of the funds by the contractor. Again, this can be modified by a written agreement. There is a 2% per month penalty in addition to interest for failure to comply and the payor can withhold up to 150% of the disputed amount. There is a provision allowing attorneys' fees to the prevailing party.
Retention must also be paid within 10 days after receipt from the owner. Again, there is a 2% per month penalty and the contractor can withhold no more than 150% of the disputed amount. There is a provision allowing attorneys' fees to the prevailing party. In this situation it is against public policy to waive the retention payments. Therefore, a contract that would waive that law would probably not be upheld.

In summary the law states that retention must be promptly paid regardless of the agreement of the parties. However, the payment of progress payments can be modified by the parties. In both instances the payor may withhold 150% of the disputed amount and is subject to a 2% per month penalty (in some instances you can also get interest) for failing to pay. In addition the prevailing party is entitled to attorneys' fees.


Public Works (Other than Utilities)

State or Local Agency to Prime Contractor Progress payments must be made by the agency within 30 days of submission of a pay request. Interest in this case is 10% per year on the unpaid amount. With respect to state public works, this became effective on contracts entered into after January 1, 1991, and with respect to local agency public contracts, this became effective with respect to contracts entered into after January 1, 1993.
Retention to the prime contractor must be paid within 60 days after completion. Again, the owner can withhold only 150% of the disputed amount. There is a provision allowing attorneys' fees to the prevailing party. If the owner does not pay a valid progress payment request, there is a 2% per month penalty and this applies to contracts entered into after January 1, 1993.


Prime Contractors to Subcontractors Progress payments must be paid within 10 days after receipt of the progress payment from the owner. In this case there is a 2% per month penalty and the statute is already in effect.
Retention must be paid within 10 days after receipt and there is a 2% per month penalty. There is a provision allowing attorneys' fees to the prevailing party.


The material for this brochure provided courtesy of . . .

Abdulaziz & Grossbart
6454 Coldwater Canyon Avenue
North Hollywood, CA 91606
(818) 760-2000 (213) 877-5776
(818) 760-3908 FAX
Abdulaziz & Grossbart has over 30 years of combined experience in construction law. The firm is well respected in the field of construction law and has been honored by their peers and the construction industry as well as legislative and regulatory bodies.


NCBE Members may purchase . . .
California Construction Law
1996 Edition
Compiled & Edited by
Sam K. Abdulaziz


This excellent reference includes extensive information about . . .

Prompt Pay
Public Works Claims
Payment Bonds
Mechanic's Liens & Stop Notices
Contractors License Law
Indemnity - Hold Harmless
Disputes
It is updated every year to include the latest changes in state law and other government and legal regulations.

To obtain your copy of California Construction Law call NCBE today.


The information contained here should not be construed as a comprehensive overview of the law, and should not be a substitute for legal advice.