Doing Some Construction? Learn about California’s Prompt Payment Laws
Whether you are a property owner, developer, or contractor, it’s important to familiarize yourself with the rules regarding prompt payment for contractors and subcontractors under California law.
Late Payments Cause Cash Flow Problems
In the construction industry, money tends to flow downhill, albeit sometimes slowly. Property owners obtain financing from lenders, who pay out funds according to percentage of completion or a predetermined schedule. It is then up to the owner to pay contractors, who in turn pay their subcontractors. In many cases, subcontractors must pay their own subcontractors or suppliers.
It’s no surprise that bills are often paid weeks and even months after they’re submitted. This creates a hardship for contractors, who must contend with significant cash flow problems as they continue to pay their employees, suppliers, and contractors while receiving no compensation for work that has already been performed. Prompt payment laws are designed to give individuals and businesses in the construction industry a measure of protection against delayed compensation.
California’s Prompt Payment Laws
Unlike other states, the provisions governing prompt payment in California are scattered throughout several code sections, including the California Business and Professions Code and the Public Contracts Code. Deciphering the various code sections can get quite confusing, which is why it’s important to work with an experienced real estate attorney.
Prompt Pay in Construction Cases
In general, California law requires owners and general contractors to pay promptly for any work performed. The deadline for payments ranges between 7 and 45 days depending on several factors, including whether the payment is a progress payment or retention payment, the type of parties, and whether the project involves a public or private entity.
The law also gives parties the right to withhold up to 150 percent of a disputed payment in the event of a good faith dispute. To prevent people from abusing this provision, however, the law also imposes a penalty of 2 percent each month that an owner or general contractor withholds payment in the absence of a good faith dispute.
California Real Estate and Eviction Law Attorneys
At Hoffman Law Group, APC, we represent the various players in the construction industry, including contractors trying to balance prompt payment against preserving lucrative and important relationships with customers. Call us to talk about your case today at (408) 241-9620.
This website has been prepared by Hoffman Law Group, APC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.