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Can California prompt payment laws apply to construction projects outside of California? What if the contract choice of law clause chose California law?

CaliforniaConstruction Contract

A company enters into a contract with a contractor for construction projects outside California, in other states. The parties in the contract's choice of law clause provides that California law governs. For prompt payment, will California courts then apply California's prompt payment law or will California's prompt payment laws not apply because no construction was done in California, only in other states?

1 reply

Oct 18, 2017

This is an interesting question - generally speaking this is an issue between freedom of contract and public policy. Parties are generally allowed to contract as they see fit, but certain contractual agreements are void and unenforceable because they are against public policy - i.e. you can't contract for something illegal, and in many states, you can't contract out of mechanics lien rights. There is a long history of clauses affecting the payment of construction industry participants being of considerable public interest - which may extend to prompt payment.

Because of the foregoing, the answer may depend on the protections given in the state in which the project occurred as compared to the prompt payment protections in California. While mechanics lien law is strictly tied to the location of the project - prompt payment concepts are not directly linked to the underlying property.

If a party wanted California prompt payment protection to apply, it is likely the best idea to insert the particular language of the California prompt pay states directly into the contract itself, rather than relying on the choice of California law, which would be less likely to work. If California law provided stronger protection re: prompt payment than the law of the project state, it is likely that the contract would control the payment terms.

Note, however, that no matter what the payment terms are, the mechanics lien rules and regulations of the project state will control and be applicable.

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