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Can we still file a Stop Payment Notice?

It is a "State Construction" project in Big Bear, CA. Preliminary 20 Day Notice was filed 7/3/2018. Our subcontract with GC is $890K. We've only received 2 payments for $274K total to date and project will be completed this week. We have a copy of GC's Payment Bond (for $8.5M). Can or should we file a Stop Payment Notice and/or only pursue a bond claim? Are we NOT allowed to do a Stop Payment Notice IF we are able to do a bond claim? Is there a reason we would NOT want to do both? Please advise. Thank you!

2 replies

Sep 25, 2019

When a preliminary notice has been properly sent, California subcontractors on public works projects are typically entitled to make a bond claim and/or send a stop payment notice. But, using one option won't prohibit the use of the other. In fact, they're often done in conjunction with one another. In determining whether one option may make more sense than another, there's a lot to consider. Since I'm not able to advise you on which route is best for your particular circumstances, I'll lay out some information that should be helpful for you to decide what makes the most sense for your business. California payment bond claim When a payment bond claim is made, that claim is sent to the surety and evaluated. The surety conducts an investigation process to determine the validity of the claim, and then it might payout from there - depending on the situation. And, if the surety is unwilling to make payment upon receiving and evaluating the claim, the claimant may end up having to file suit against the bond to enforce the claim. But, the bottom line with a payment bond claim is that the surety is obligated to make payment if the bond claim is valid. So, there's definitely funds available to pay the claim. But, sureties also can take a long time to evaluate and ultimately pay a claim. And, if necessary, enforcing the claim would draw that process out longer. So, relief may not be immediate - but the money is ultimately there to pay the claim. California stop payment notice A stop payment notice (also called a "stop notice") operates a bit differently. A stop payment notice is sent directly to the public entity, and upon receipt, the public entity is required to withhold payment from their contractor in order to make sure funds are available for the claimant. So, like a payment bond claim, a stop payment notice also ensures that there's money available to pay a claimant - but, this will only be effective to the extent that there's still funding for the project that's not yet been paid to the prime contractor. While both payment bonds and stop notices have a visible deadline for making a claim, stop notices also have a sort-of invisible deadline. If a contractor is paid in full, but their subcontractor files a stop notice after the contractor is fully paid, then a stop payment notice wouldn't be effective to do much. But, when a stop notice is filed before that happens, it can seriously disrupt a contractor's cash flow, and when there's a substantial claim, they'll typically need to resolve the stop notice before proceeding with the project. Bottom line Stop payment notices and bond claims can both be really effective, and nothing in California's payment works statutes seems to prevent pursuing both. In a situation where a project is nearing completion, it's helpful to make a stop payment notice before retainage is released to the project's prime contractor. And, a bond claim can help to get paid, but sureties can be slow to release payment, if they must pay out the claim. As a last and final note - keep in mind that the mere threat to file a stop payment notice and/or to make a payment bond claim can help push a contractor to release payment. Both potential claims can seriously disrupt the project as well as a contractor's business, and if possible, they'll typically want to avoid them. For more background on both options: California Bond Claim and Stop Notice Guide and FAQs.

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Sep 28, 2019

Wonderful advice from Matt. Generally speaking, it is a good idea to pursue both remedies as Matt lays out above. Both provide security and leverage to get paid and it almost always makes sense to ensure that you preserve both avenues of recovery.

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