How fast must this construction payment move, and can the contract change the deadline?
On a private work, unless the owner and direct contractor otherwise agree IN WRITING, the owner must pay the direct contractor any undisputed progress payment within 30 days after notice demanding payment is given; where there is a good faith dispute the owner may withhold no more than 150 percent of the disputed amount; and an owner who violates the section owes a penalty of 2 percent per month on the amount wrongfully withheld in place of any interest otherwise due (Civ. Code § 8800). Down the chain, a prime contractor or subcontractor must pay each subcontractor its share of a progress payment not later than SEVEN days after receipt, unless otherwise agreed in writing, withholding no more than 150 percent of any good-faith-disputed amount; violation is grounds for discipline and carries a 2 percent per month penalty payable to the subcontractor, with fees and costs to the prevailing party in a collection action (Bus. & Prof. Code § 7108.5). Retention is a separate regime and § 8800 says so in its last subsection: “This section does not supersede any requirement of Article 2 (commencing with Section 8810) relating to the withholding of a retention.” Article 2 provides that “This article governs a retention payment withheld by an owner from a direct contractor or by a direct contractor from a subcontractor”, and it sets its own clocks: “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.”, and “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.” Retention has its own penalty and its own dispute clock: an owner or direct contractor that misses a retention deadline "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", with costs and fees to the prevailing party (§ 8818); and where disputed work is noticed as complete, the payer must accept or reject it within 10 days and pay the related retention within 10 days of acceptance (§ 8816).
The trap
The deadlines are expressly subject to written agreement ('Except as otherwise agreed in writing' in § 8800(a); 'unless otherwise agreed to in writing' in § 7108.5(a)); the 150 percent withholding limit is stated in its own sentence without that qualifier, so a withholding provision letting the payer retain the full invoice over a partial dispute sits against the statutory text, whether a written contract can enlarge the limit was not established from any opinion for the progress-payment sections, and for the RETENTION article the statute answers it outright: "It is against public policy to waive the provisions of this article by contract." (§ 8820), so a term enlarging § 8812(c)'s or § 8814(c)'s retention limit is waiving an article that may not be waived. The penalty is 2 percent per MONTH, not interest, on the amount wrongfully withheld, and § 7108.5(d) makes its sanctions separate from and in addition to all other remedies. Section 7108.5 applies to private and public works alike, except where Public Contract Code § 10262 applies (§ 7108.5(e)). And do not read the 30-day and 7-day clocks onto money held as retention. § 8800(d) expressly does not supersede Article 2, which governs retention withheld by an owner from a direct contractor or by a direct contractor from a subcontractor, and whose deadlines are different: 45 days after completion of the work of improvement for the owner, and 10 days after receiving a retention payment for the direct contractor. A clause that folds retention into the progress-payment timetable is measuring against the wrong section. The 150 percent good-faith-dispute limit does appear in both regimes, in § 8800(b) and again in § 8812(c) and in § 8814(c), which measures it against "the estimated value of the disputed amount". And Article 2 does not reach a retention payment withheld by a lender pursuant to a construction loan agreement (§ 8822), so money a construction lender holds is outside both of the retention clocks above. One more timetable sits beside these two: where a PUBLIC UTILITY pays a direct contractor, the direct contractor must pay the subcontractor within 21 days after receiving the progress payment unless they otherwise agree in writing, with the same 150 percent withholding limit (§ 8802(b)). A 'good faith dispute' is also not just any dispute. On a retention withheld from a subcontractor, the exception excuses payment only when a good faith dispute exists over a statutory or contractual precondition to that payment, such as the adequacy of the construction work for which the payment is consideration; controversies concerning unrelated work or additional payments above the amount both sides agree is owed will not excuse delay, and a direct contractor cannot withhold payment where the underlying obligation to pay those specific monies is undisputed (United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., construing § 8814(c)).
12 authorities
- statuteCal. Civ. Code § 8800enactment date not established
The words that state the rule
(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.
- statuteCal. Bus. & Prof. Code § 7108.5enactment date not established
The words that state the rule
(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.
- statuteCal. Civ. Code § 8800enactment date not established
The words that state the rule
This section does not supersede any requirement of Article 2 (commencing with Section 8810) relating to the withholding of a retention.
- statuteCal. Civ. Code § 8810enactment date not established
The words that state the rule
This article governs a retention payment withheld by an owner from a direct contractor or by a direct contractor from a subcontractor.
- statuteCal. Civ. Code § 8812enactment date not established
The words that state the rule
(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.
- statuteCal. Civ. Code § 8814enactment date not established
The words that state the rule
(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.
- statuteCal. Civ. Code § 8818enactment date not established
The words that state the rule
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.
- statuteCal. Civ. Code § 8816enactment date not established
The words that state the rule
(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.
- statuteCal. Civ. Code § 8820enactment date not established
The words that state the rule
It is against public policy to waive the provisions of this article by contract.
- statuteCal. Civ. Code § 8822enactment date not established
The words that state the rule
This article does not apply to a retention payment withheld by a lender pursuant to a construction loan agreement.
- statuteCal. Civ. Code § 8802enactment date not established
The words that state the rule
(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.
- caseNo. S231549 (Cal. May 14, 2018)United Riggers & Erectors, Inc. v. Coast Iron & Steel Co.Cal.decided 2018
The words that state the rule
But these strict deadlines include an exception relevant to this case: Direct contractors can withhold monies from subcontractors in circumstances where a dispute has arisen between the parties. (Civ. Code, § 8814, subd. (c).) What we must decide is whether this exception allows withholding when there is any dispute between the parties, or only when there is a dispute directly relevant to the specific payment that would otherwise be due. The Court of Appeal adopted the narrower construction. We agree. The dispute exception excuses payment only when a good faith dispute exists over a statutory or contractual precondition to that payment, such as the adequacy of the construction work for which the payment is consideration. Controversies concerning unrelated work or additional payments above the amount both sides agree is owed will not excuse delay; a direct contractor cannot withhold payment where the underlying obligation to pay those specific monies is undisputed. We affirm.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.