California Payment Terms Guide & FAQs

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California Payment Terms Overview

California Payment Terms Overview


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Pay when Paid valid Icon
Pay When Paid is Valid

California only allows pay when paid clauses to set a reasonable time for payment, not to bar it completely.


Pay if Paid not valid Icon
Pay if Paid Not Enforceable

Pay If Paid clauses are not enforceable and are illegal in California. Unenforceable by statute and case law. Cal Civ Code § 3262


No Escrow Icon
No Trust Fund Statute

California has no construction trust fund requirement but allows a similar duty to be created by contract.


Retainage Unregulated Icon
Retainage Mostly Unregulated

California has some laws about retainage, but the amount of retainage withheld is unregulated. Contractors can withhold any amount of retainage. In the event of a dispute, up to 150% of the amount in dispute can be withheld!


7
DAYS
Payment Due to Subs/Suppliers in 7 Days

For Subs & Suppliers, 7 days after payment received from above; unless otherwise agreed. Payment to GCs is required within 30 days.


lien waivers regulated
Lien Waivers Are Regulated

The forms and process for exchanging lien waivers are very specific in California, and is regulated. It's important to follow the state's rules.

Pay when Paid valid Icon
Pay When Paid is Valid

Pay-when-paid” clauses are probably enforceable as a timing mechanism on public projects, provided clear language is used. However, this doesn't preculde payment altogether, as payment must be made within a reasonable time after the sub completes work.


Pay if Paid not valid Icon
Pay if Paid Unenforceable

Pay If Paid clauses are not enforceable and are illegal in California, as per statutes and case law.


No Escrow Icon
No Trust Fund Statute

California has no construction trust fund requirement, but allows a similar duty to be created by contract.


5
PERCENT
5% Maximum Retainage Withheld

Prior to completion and acceptance of the project, cannot exceed 5%. After 95% of the work is complete, withheld funds may be reduced to 125% of the estimated value of the unfinished work.


7
DAYS
Payment Due to Subs/Suppliers in 7 Days

Payment due to subs & suppliers within 7 days of payment received from above. Deadline for payment extended to 21 days after payment received from public utility. GCs must be paid within 30 days.

Construction payment is highly regulated across the United States, and especially so in California.

Property developers, contractors, and suppliers can enter into construction contracts and set the terms of their agreement — including payment terms — but there are some legal rules that are more powerful than those contracts.  And, in fact, if construction contracts don’t conform to the rules, there are circumstances when the entire contract might be invalidated!

There are some key laws that regulate the construction payment process in California, which include:

And additionally, state statutes and case law frequently interpret how certain construction contract provisions should be interpreted, and whether the provisions should be allowed or not. Courts look to construction contract provisions and decide whether they are valid and enforceable, or, if they are invalid because they “violate public policy.”

When it comes to the payment terms set out in a construction contract, there is strong public policy in California to protect the right of workers, contractors, and suppliers to be paid for their work and materials.  California, in other words, protects contractors and suppliers from getting stiffed.

And so when a property developer or general contractor throw their weight around and get a contractor to sign “unfair” or terms that put the contractor in a bad position, the contract is sometimes so unfair that it’s deemed invalid.

This is the case in California, for example, with pay if paid provisions.  Although very common to see in construction contracts (after all, these provisions are within the AIA standard documents), these are illegal in California and unenforceable. General contractors can get subcontractors to sign them all they want…but they can’t enforce them.

It’s important for everyone on a construction project to treat one another fairly. But, when it comes to signing construction contracts in California, and exchanging payment applications, and eventually, payment…it’s important to know the rules of the game.  This page provides a resource to you to really understand those rules.

Payment Applications & Payment Terms FAQs in California

The construction payment process is highly regulated in California. It can be confusing to figure out when payments must be made, how to make them, and how to best protect your company from expensive problems. Here are some frequently asked questions that come up with the payment application and payment process on California jobs.

California Payment Terms & Payment Applications

What happens if my contractor is violating California laws when making payment?

Answer

What if my construction contract terms are different than California's rules?

Answer, including discussion about severability clauses.

Can I file a lien even if I signed a "pay if paid" clause in California?

Answer

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Recent Questions About California Payment Terms

Can a GC submit a lien against a homeowner before a final billing has been sent?

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Helpings Thousands of California Contractors with Payment Applications and Payment Terms