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California Prompt Payment Guide & FAQs

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California Prompt Payment Overview

California Prompt Payment Requirements


  • Private Jobs
  • Public Jobs
  • Top Links
30/45
DAYS
Prime Contractors

For Prime (General) Contractors, progress payments due within 30 days of request for payment. Final/retainage payment due within 45 days of the project's completion as a whole.


7/10
DAYS
Subcontractors

For Subcontractors, progress payments due within 7 days after payment is received above; unless otherwise agreed. Final/retainage payment due within 10 days after payment is received above.


7/10
DAYS
Suppliers

For Suppliers, progress payments due within 7 days after payment is received above; unless otherwise agreed. Final/retainage payment due within 10 days after payment is received above.


2%
/ MONTH
Interest & Fees

Interest awarded at 2% per month; attorney fees awarded to the prevailing party.

30/60
DAYS
Prime Contractors

For Prime (General) Contractors, progress payments due within 30 days of request for payment. (time is extended to 39 days after invoice for state university projects) Final/retainage payment due within 60 days of the project's completion as a whole.


7
DAYS
Subcontractors

For Subcontractors, payment due within 7 days after payment is received above. Deadline for payment extended to 21 days after payment received from public utility.


7
DAYS
Suppliers

For Suppliers, payment due within 7 days after payment is received above. Deadline for payment extended to 21 days after payment received from public utility.


DEPENDS
Interest & Fees

Interest at 10% per year for Prime, with attorneys' fees only available when court determines funds were wrongfully withheld. Interest at 2% per month for sub-tiers, and attorney fees awarded to the prevailing party.

Prompt payment laws are a set of rules that regulate the acceptable amount of time in which payments must be made to contractors and subs. This is to ensure that everyone on a construction project is paid in a timely fashion. These statutes provide a framework for the timing of payments to ensure cash flow and working capital.

Projects Covered by Prompt Payment in California

The state of California regulates prompt payment on both private and public construction projects.

Private Projects

Private construction projects in California are governed by Cal. Bus. & Prof. §7108.5 and Cal. Civ. Code. §§8800, and 8810-8822.

Payment Deadlines for Private Projects

The payment deadlines on private projects differ depending on whether it is a progress payment or a final payment. Progress payments from the owner to the prime contractor must be made within 30 days of the payment request, unless the contract says otherwise. Once the prime contractor receives a progress payment, they have 7 days from receipt to pay their subcontractors or suppliers.

Final payments from the owner to the prime contractor become due within 45 days after the completion of the entire project. Upon receipt of payment from the owner, the prime contractor needs to make payment to their subs and suppliers within 10 days. The same deadline applies to all other payments down the chain.

Penalties for Late Payment on Private Projects

If there is a dispute regarding a payment request, the paying party may withhold up to 150% of the amount in dispute. This must be based on one of the reasons to withhold payment provided in the statutes. If payment is late or wrongfully withheld, interest will accrue at a rate of 2% per month, until the payment is made. Also, if the dispute ends up in court or arbitration the prevailing party will be awarded costs and attorney fees.

Public Projects

California has separate sets of statutes that regulate public works projects. These statutes are found in Cal. Bus. Prof. Code §7108.5. and Cal. Pub. Contract Code §§10261.5, 10262, and 10853.

Payment Deadlines for Public Projects

Upon receipt of a progress payment request form the prime contractor, the public entity must release payment within 30 days. This deadline is extended to 39 days if the work was contracted by a state university. As for final/retainage payments, the public entity must release payment within 60 days after the completion of the project.

Once a prime contractor has received any payment from the public entity they must pay their subs and suppliers within 7 days. But, if the payment is received from a public utility, then the deadline is extended to 21 days after the prime received payment. As for all other payments, they are due within 7 days of receipt, unless the contract terms say otherwise.

Penalties for Late Payment on Public Projects

If there is a bona fide dispute over the amount due, no more than 150% of the amount in dispute. If not, and payment is late or wrongfully withheld, interest will accrue. The rate of interest depends on whether its a payment from the public entity to the prime, or payment other payments.

For late payments to the prime contractor, interest will accrue at 10% (0.833%/month). In addition, attorney fees will only be available if the court or arbitrator determines the funds were wrongfully withheld. Late payments to any sub-tier participants will accrue interest at 2% per month; along with costs and attorney fees being awarded to the prevailing party.

California Quick Guide to Prompt Payment

California Prompt Payment Frequently Asked Questions

California Prompt Payment Private Projects FAQs

Do I have to send a letter or file anything to qualify for Prompt Payment Penalties or Remedies in California?

The California prompt payment act applies upon pursuant to the terms of the contract, and upon the expiration of the timing requirements set forth by the statute.

Can I include Prompt Payment Fees in my California Mechanics Liens Claim or Bond Claim?

No. California law does not allow for the recovery of miscellaneous amounts in a mechanics lien.

If I am paid late according to Prompt Payment Statutes, can I obtain interest or other Penalty Payments?

If payment is received late, and none of the valid reasons for late or extended payment apply, the party to be paid is entitled to recover the interest allowed by law. As a practical matter, it may be difficult to recover amounts in excess of the contractually due amount without filing suit. Attorney’s fees may only be recovered by a prevailing party in an action to recover wrongfully withheld funds.

Are there reasons for which payment may be withheld past the general deadline?

Payment may be withheld in California for the following reasons:

  1. Unsatisfactory job progress,
  2. Defective construction work or materials not remedied,
  3. Disputed work or materials,
  4. Failure to comply with other material provisions of the construction contract,
  5. Third party claims filed or reasonable evidence that a claim will be filed,
  6. Failure of a contractor or a subcontractor to make timely payments for labor, equipment and materials,
  7. Damage to the owner,

Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum.

What is the best practice for making a demand to a non-paying party to get Prompt Payment Fees?

Sending a notice of intent to lien and prompt payment demand is generally the best method for encouraging parties to make payment.

California Prompt Payment Public Projects FAQs

Do I have to send a letter or file anything to qualify for Prompt Payment Penalties or Remedies in California?

The California prompt payment act applies pursuant to the timing requirements set forth by statute. Interest is recoverable if amounts are wrongfully withheld, and attorneys’ fees are recoverable by the prevailing party in an action to recover wrongfully withheld funds.

Can I include Prompt Payment Fees in my California Mechanics Liens Claim or Bond Claim?

No. California law does not allow for the recovery of miscellaneous amounts in a bond claim.

If I am paid late according to Prompt Payment Statutes, can I obtain interest or other Penalty Payments?

If payment is received late, and none of the valid reasons for late or extended payment apply, the party to be paid is entitled to recover the interest allowed by law. As a practical matter, it may be difficult to recover amounts in excess of the contractually due amount without filing suit. Attorneys’ fees may only be recovered by a prevailing party in an action to recover wrongfully withheld funds.

Are there reasons for which payment may be withheld past the general deadline?

Payment may be withheld in California pursuant to a bona fide dispute over the amount due.

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California Prompt Payment
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California Prompt Payment Statutes

Getting informed about prompt payment laws is important. An examination of California prompt payment laws, the rules and regulations related to payment timing, is important to know your rights and responsibilities as a party on a construction project. California specific laws can be found in: Cal. Civ. Code §§ 8800 – 8802, 8810 – 8822; Cal. Bus. & Prof. Code § 7108.5 , and Pub. Cont. Code §§ 7107, 10261.5, 10262.5, 10853, and are reproduced below.

Prompt Payment Statute on Private Projects

Cal. Civil Code § 8800: Time for payment; withholding from payment in case of dispute; liability for violation

(a) Except as otherwise agreed in writing by the owner and direct contractor, the owner shall pay the direct contractor, within 30 days after notice demanding payment pursuant to the contract is given, any progress payment due as to which there is no good faith dispute between them. The notice given shall comply with the requirements of Chapter 2 (commencing with Section 8100) of Title 1.

(b) If there is a good faith dispute between the owner and direct contractor as to a progress payment due, the owner may withhold from the progress payment an amount not in excess of 150 percent of the disputed amount.

(c) An owner that violates this section is liable to the direct contractor for a penalty of 2 percent per month on the amount wrongfully withheld, in place of any interest otherwise due. In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and a reasonable attorney’s fee.

(d) This section does not supersede any requirement of Article 2 (commencing with Section 8810) relating to the withholding of a retention.

Cal. Civil Code § 8802: Contracts between public utility and direct contractor

(a) This section applies to a contract between a public utility and a direct contractor for all or part of a work of improvement.

(b) Unless the direct contractor and a subcontractor otherwise agree in writing, within 21 days after receipt of a progress payment from the public utility the direct contractor shall pay the subcontractor the amount allowed the direct contractor on account of the work performed by the subcontractor to the extent of the subcontractor’s interest in the work. If there is a good faith dispute over all or part of the amount due on a progress payment from the direct contractor to a subcontractor, the direct contractor may withhold an amount not in excess of 150 percent of the disputed amount.

(c) A direct contractor that violates this section is liable to the subcontractor for a penalty of 2 percent of the disputed amount due per month for every month that payment is not made. In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and a reasonable attorney’s fee.

(d) This section does not limit or impair a contractual, administrative, or judicial remedy otherwise available to a contractor or subcontractor in a dispute involving late payment or nonpayment by the contractor or deficient performance or nonperformance by the subcontractor.

Cal. Civil Code § 8810: Generally

This article governs a retention payment withheld by an owner from a direct contractor or by a direct contractor from a subcontractor.

Cal. Civil Code § 8812: Owner withholding retention from subcontractors

(a) If an owner withholds a retention from a direct contractor, the owner shall, within 45 days after completion of the work of improvement, pay the retention to the contractor.

(b) If part of a work of improvement ultimately will become the property of a public entity, the owner may condition payment of a retention allocable to that part on acceptance of the part by the public entity.

(c) If there is a good faith dispute between the owner and direct contractor as to a retention payment due, the owner may withhold from final payment an amount not in excess of 150 percent of the disputed amount.

Cal. Civil Code § 8814: Notice of acceptance or rejection of disputed work

a) If a direct contractor has withheld a retention from one or more subcontractors, the direct contractor shall, within 10 days after receiving all or part of a retention payment, pay to each subcontractor from whom retention has been withheld that subcontractor’s share of the payment.

(b) If a retention received by the direct contractor is specifically designated for a particular subcontractor, the direct contractor shall pay the retention payment to the designated subcontractor, if consistent with the terms of the subcontract.

(c) If a good faith dispute exists between the direct contractor and a subcontractor, the direct contractor may withhold from the retention to the subcontractor an amount not in excess of 150 percent of the estimated value of the disputed amount.

Cal. Civil Code § 8816: Notice of acceptance or rejection of disputed work

(a) If the direct contractor gives the owner, or a subcontractor gives the direct contractor, notice that work in dispute has been completed in accordance with the contract, the owner or direct contractor shall within 10 days give notice advising the notifying party of the acceptance or rejection of the disputed work. Both notices shall comply with the requirements of Chapter 2 (commencing with Section 8100) of Title 1.

(b) Within 10 days after acceptance of disputed work, the owner or direct contractor shall pay the portion of the retention relating to the disputed work.

Cal. Civil Code § 8818: Liability for failure to timely make retention payments

If an owner or direct contractor does not make a retention payment within the time required by this article:

(a) The owner or direct contractor is liable to the person to which payment is owed for a penalty of 2 percent per month on the amount wrongfully withheld, in place of any interest otherwise due.

(b) In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and reasonable attorney’s fees.

Cal. Civil Code § 8820: Waiver of provisions against public policy

It is against public policy to waive the provisions of this article by contract.

Cal. Civil Code § 8822: Inapplicability to construction loan agreement

This article does not apply to a retention payment withheld by a lender pursuant to a construction loan agreement.

Cal. Bus. & Prof. Code Section § 7108.5: Progress payments to subcontractor

(a) A prime contractor or subcontractor shall pay to any subcontractor, not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’ s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.

(b) Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the subcontractor, of 2 percent of the amount due per month for every month that payment is not made.

(c) In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney’s fees and costs.

(d) The sanctions authorized under this section shall be separate from, and in addition to, all other remedies, either civil, administrative, or criminal.

(e) This section applies to all private works of improvement and to all public works of improvement, except where Section 10262 of the Public Contract Code applies.

Prompt Payment Statute on Public Projects

Cal. Bus. & Prof. Code Section § 7108.5: Progress payments to subcontractor

(a) A prime contractor or subcontractor shall pay to any subcontractor, not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’ s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.

(b) Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the subcontractor, of 2 percent of the amount due per month for every month that payment is not made.

(c) In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney’s fees and costs.

(d) The sanctions authorized under this section shall be separate from, and in addition to, all other remedies, either civil, administrative, or criminal.

(e) This section applies to all private works of improvement and to all public works of improvement, except where Section 10262 of the Public Contract Code applies.

Cal. Civil Code § 8802: Contracts between public utility and direct contractor

(a) This section applies to a contract between a public utility and a direct contractor for all or part of a work of improvement.

(b) Unless the direct contractor and a subcontractor otherwise agree in writing, within 21 days after receipt of a progress payment from the public utility the direct contractor shall pay the subcontractor the amount allowed the direct contractor on account of the work performed by the subcontractor to the extent of the subcontractor’s interest in the work. If there is a good faith dispute over all or part of the amount due on a progress payment from the direct contractor to a subcontractor, the direct contractor may withhold an amount not in excess of 150 percent of the disputed amount.

(c) A direct contractor that violates this section is liable to the subcontractor for a penalty of 2 percent of the disputed amount due per month for every month that payment is not made. In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and a reasonable attorney’s fee.

(d) This section does not limit or impair a contractual, administrative, or judicial remedy otherwise available to a contractor or subcontractor in a dispute involving late payment or nonpayment by the contractor or deficient performance or nonperformance by the subcontractor.

Cal. Pub Cont. Code § 7107: Release of retention withheld after completion of work

(a) This section is applicable with respect to all contracts entered into on or after January 1, 1993, relating to the construction of any public work of improvement.

(b) The retention proceeds withheld from any payment by the public entity from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section.

(c) Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released. In the event of a dispute between the public entity and the original contractor, the public entity may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. For purposes of this subdivision, “completion” means any of the following:

(1) The occupation, beneficial use, and enjoyment of a work of improvement, excluding any operation only for testing, startup, or commissioning, by the public agency, or its agent, accompanied by cessation of labor on the work of improvement.

(2) The acceptance by the public agency, or its agent, of the work of improvement.

(3) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 100 days or more, due to factors beyond the control of the contractor.

(4) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 30 days or more, if the public agency files for record a notice of cessation or a notice of completion.

(d) Subject to subdivision (e), within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor’s share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract.

(e) The original contractor may withhold from a subcontractor its portion of the retention proceeds if a bona fide dispute exists between the subcontractor and the original contractor. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount.

(f) In the event that retention payments are not made within the time periods required by this section, the public entity or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to attorney’s fees and costs.

(g) If a state agency retains an amount greater than 125 percent of the estimated value of the work yet to be completed pursuant to Section 10261, the state agency shall distribute undisputed retention proceeds in accordance with subdivision (c). However, notwithstanding subdivision (c), if a state agency retains an amount equal to or less than 125 percent of the estimated value of the work yet to be completed, the state agency shall have 90 days in which to release undisputed retentions.

(h) Any attempted waiver of the provisions of this section shall be void as against the public policy of this state.

Cal. Pub Cont. Code § 10261.5: Progress payments; retention amounts

(a)Any state agency which fails to make any progress payment within 30 days after receipt of the payment request from a contractor on a construction contract for an undisputed payment request, which was properly submitted by the contractor to the agency, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. Any state agency which independently calculates the amount due on a progress payment and which fails to make a progress payment within 30 days of the first submittal of the estimate for each contract by the engineer, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor’s request or the first submittal by the engineer, and the Controller has processed the payment within 14 days of receipt of the request or submittal, the contracting state agency shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor’s request or the first submittal by the engineer, and the contracting state agency has processed the payment within 16 days after receipt of the request or submittal, the Controller shall pay interest as provided in Section 685.010 of the Code of Civil Procedure.

For purposes of this section, a payment request shall be considered properly executed if funds are available for payment of the payment request, and payment is not delayed due to an audit inquiry by the Controller.

(b)Upon receipt of a payment request, each agency shall require:

(1)That each payment request be reviewed as soon as practicable after receipt for the purpose of determining that a payment request is a proper payment request.

(2)Any payment request determined not to be a proper payment request suitable for payment shall be returned as soon as practicable, but not later than seven days, after receipt, specifying the reasons that the payment request is not a proper payment request.

(3)The number of days available to a state agency to make a timely payment of payment request without incurring interest shall be reduced by the number of days by which an agency exceeds the requirements of paragraph (2).

Cal. Pub Cont. Code § 10262.5: Payment to subcontractor of respective amount allowed contractor on account of work performed by subcontractor

(a) Notwithstanding any other provision of law, a prime contractor or subcontractor shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.

Any contractor who violates this section shall pay to the subcontractor a penalty of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney’s fees and costs.

(b)This section shall not be construed to limit or impair any contractual, administrative, or judicial remedies otherwise available to a contractor or a subcontractor in the event of a dispute involving late payment or nonpayment by a contractor or deficient subcontract performance or nonperformance by a subcontractor.

(c)On or before September 1 of each year, the head of each state agency shall submit to the Legislature a report on the number and dollar volume of written complaints received from subcontractors and prime contractors on contracts in excess of three hundred thousand dollars ($300,000), relating to violations of this section.

Cal. Pub Cont. Code § 10853: Failure to timely make progress payments; duties upon receipt of payment request

(a)If the trustees fail to make a progress payment on a contract within 39 days after receipt of an undisputed and properly submitted payment request from a contractor on a construction contract, the trustees shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. If the payment is not made within 39 days of receipt of the contractor’s request, and the Controller has processed the payment within 14 days of the receipt of the request, the trustees shall pay interest to the contractor equivalent to the legal rate as provided in subdivision (a) of Section 685.010 of the Code of Civil Procedure. If the payment is not made within 39 days of receipt of the contractor’s request, and the trustees have processed the payment within 25 days after the receipt of the request, the Controller shall pay interest equivalent to the legal rate as provided in subdivision (a) of Section 685.010 of the Code of Civil Procedure.

(b)Upon receipt of a payment request, the trustees shall act in accordance with the following:

(1)Each payment request shall be reviewed by the trustees as soon as practicable after receipt for the purpose of determining that the payment request is a proper payment request.

(2)Any payment request determined not to be a proper request suitable for payment shall be returned to the contractor as soon as practicable, but not later than seven days after receipt. A request returned pursuant to this paragraph shall be accompanied by a document setting forth in writing the reasons why the payment request is not proper.

(3)Upon request from the trustees, the Controller may elect to expedite each payment request and may charge the trustees an appropriate amount, as determined by the Controller, for costs incurred in expediting the payment request.

(c)The number of days available to the trustees to make a payment without incurring interest shall be reduced by the number of days by which the trustees exceed the seven-day return requirement set forth in paragraph (2) of subdivision (b).

(d)A properly submitted payment request shall be defined as the date upon which the trustees receive a payment request, certified in accordance with the contract, at the address identified in the contract.

(e)For purposes of this section:

(1)A “progress payment” includes all payments due contractors, except that portion of the final payment withheld pursuant to Section 10851.

(2)A payment request shall be considered properly executed if funds are available for payment of the payment request and payment is not delayed due to an audit inquiry by the Controller.

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