California Construction Contractors: What to Do When a Client Won’t Pay?
You’re a contractor. You’ve just finished a job (with a contract!) and now, when it comes time for the client to hold up their end of the bargain – nada.
“No worries,” you think. This client seems legit. They’ll pay, they’re just forgetful is all. Yada yada. Days go by, then weeks, and still nothing hits your account number. You check your emails and make sure that everything went through okay.
It’s starting to dawn on you: your client might be “one of those.” Any seasoned contractor has dealt with “one of those” – people who get you to work, and then completely stiffs you when it comes time to get you paid.
So what happens when a client won’t pay a contractor? What recourse do you have as a contractor? What steps do you take to get the money you deserve for the work you’ve completed?
Let’s find out.
The First First Step
The first line of defense against non-payment is a well-established contract. Before you even think about taking the job – you need to make sure you have a comprehensive contract that covers all elements of the job: timing, materials, costs, emergency provisions, and so on.
It should outline the scope of work, payment terms, and procedures for handling disputes or changes. If anything is unclear, seek clarification before work commences. Always, always, always hire a lawyer to make sure your contract is iron-clad ahead of time – because it’s going to save you a ton of time and money on the back-end in case of a dispute.
In the construction industry, documentation is king. We’re not telling you anything you don’t know, of course.
A good contractor always keeps detailed records of all work performed – including labor hours, materials used, and any changes or additions to the original scope of work.
Always make sure you get everything – and anything – in writing. If they want to change the scope or the concept, get it in writing. If they want to negotiate price changes, get it in writing. If they want your opinion on a Christmas present for their nephew – get it in writing!
Your client, as much as you may like them, is not your friend. When push comes to shove, you need to act professionally and get every little detail in writing to ensure you’re protected in case of a dispute. Your client can be your friend, but consistent documentation is your best friend – and it always will be.
Step 1: The 20-Day Preliminary Notice
In California, a preliminary notice is a legal requirement – and your first step towards securing payment in the case of a default. This notice, which must be served to the property owner and general contractor within 20 days of starting work, informs them of your right to file a mechanic’s lien if not paid.
This is the first piece of groundwork you have to lay in order to get paid, no matter what your role is in the construction. Anyone, from a roofer to a general contractor, can and should file a 20-day Preliminary Notice on every single job they work on.
We repeat: there is literally no reason not to file a 20-day Preliminary Notice. It can only protect you in the case of nonpayment!
Step 2: File A Mechanics Lien
A mechanics lien is a legal claim against a property that has been improved (such as construction or renovation) and for which the work has not been paid. In California, anyone who provides materials or services during construction can file a mechanics lien.
In essence, a mechanics lien is a legal protection for unpaid construction workers. It allows you to place a lien – basically, a legal impediment – upon the property where the unpaid work was performed. While this does not guarantee payment for your work, it does create significant personal issues for the client – usually enough that they decide to pay you.
To file a mechanic’s lien, you must first serve a Notice of Right to Lien. The lien itself must contain specific information, including the owner’s name, a general description of the property and location, the name of the hiring party, a description of the work performed, and the amount of money owed. The lien must be filed in the county recorder’s office in the county where the property is located.
Step 3: Enforce the Lien In The Courts
If payment is not received after filing the lien, the next step is enforcement – and this requires you to file yet another legal action. In this case, it’s legally pursuing the claim to the property after you’ve filed a mechanics lien.
In California, the deadline to enforce a mechanics lien is 90 days after recording the claim. This involves initiating a lawsuit to foreclose on the lien – which can result in the sale of the property to satisfy the debt. Either way, you need to open this lawsuit against the person who has not paid you – if you do not, you will most likely not get paid!
The California Prompt Payment Act
A brand new piece of legislation launched in 2022 strengthened California contractors’ rights when it comes to ensuring payment for services provided.
The California Prompt Payment Act regulates the acceptable amount of time in which payments must be made to contractors and subcontractors, ensuring that everyone on a construction project is paid in a timely fashion. Here’s the basics:
- For private projects, 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.
- For public projects, upon receipt of a progress payment request from the prime contractor, the public entity must release payment within 30 days.
- Once a prime contractor has received any payment from the public entity they must pay their subs and suppliers within 7 days.
- If payment is late or wrongfully withheld, interest will accrue. For late payments to the prime contractor, interest will accrue at 10% (0.833% per month). Late payments to any sub-tier participants will accrue interest at 2% per month.
Stop Payment Notice: An Additional Tool
In California, when there is no bond present on a public construction project, a claimant can send a Stop Payment Notice.
This notice creates a lien on disbursed construction funds held by an owner or construction lender.
If a stop payment notice claimant has not been paid, the claimant can serve a stop payment notice on an owner which requires the owner to withhold funds from a direct contractor or, on lender-financed projects, serve a stop payment notice on a construction lender which requires the construction lender to withhold funds from an owner.
Lawyer Up ASAP!
The best piece of advice we can give you is to not take our advice – take a lawyer’s advice.
At the end of the day, the US legal system is a complex pile of increasingly confusing statutes and regulations – something that anyone without legal training is not equipped to deal with.
While lawyers can be expensive, in this case, it’s simply a cost of doing business. Without a lawyer, we would argue that it’s almost impossible to navigate the nightmare of paperwork, forms, appearances, summons, and all the other confounding nonsense that comes out of the courts in 2023.
Hiring a lawyer is a must in this situation. If you’re facing nonpayment, the first thing you should do is contact a lawyer for a consultation.
The good thing is California has robust laws to protect contractors from nonpayment, so long as you follow the steps above. These laws do require a bit of expert finessing, but receiving payment for uncompleted work is almost guaranteed if you follow the correct pathways and procedures to get there. Good luck!