California’s constitution assures contractors and suppliers that they will be paid for their contributions to real property (Cal. Const. Art XIV, § 3). However, the details are left to the state legislature. That has resulted in a constant tug-of-war among owners, contractors, subcontractors, suppliers, and lenders that twists and turns the mechanics lien laws; those statutes are continually made more and more complex.
Today, they have numerous and confusing time limits for various actions required of contractors. The penalty for missing one of those deadlines could be severe: A contractor’s right to pursue a mechanics lien, stop payment notice or bond claim could be completely lost. The same obtains for other contractor rights.
Here are the critical time deadlines on public works projects, in the laws governing stop payment notices, bond claims, bid withdrawals, listed subcontractor replacements, sub-bidder promissory estoppel and supplier bid confirmations, and submissions of proposed equals to specified materials, products, things or services.
Definitions Of Key Terms On Public Works
Work of Improvement: Construction, alteration, repair or demolition of, or on, any building or other structure, ditch, well, tunnel, road or landscaping, or the change in the grade of any land (Civ. Code § 8050). In other words, a construction project.
Direct Contractor or Prime Contractor: A contractor who has a direct contractual relationship with an owner; since 2012, the the contract has been a Direct Contract (Civ. Code § 8016) and the contractor a Direct Contractor (Civ. Code § 8018).
Subcontractor: All contractors who do not have a direct contractual relationship with an owner (Civ. Code § 8046).
Public Work: A work of improvement contracted for by a public entity (Civ. Code § 9000)
Public Entity: “the state, Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state.” (Civ. Code § 8036). Beware of public agencies and corporations that look like private owners.
Public Works Contract: One for “the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind” (Civ. Code § 8038 and Pub. Cont. Code §1101). Private entities can enter contracts that might fit this definition, so they could be public works contracts, e.g., utilities in a new subdivision.
Completion of a Public Work: Completion of a public work is the earlier of the date
(a) When the public entity formally accepts the work; or
(b) When, except for state projects, no work has been done on the project for 60 consecutive days (Civ. Code § 9200).
Watch out for projects where work stops for more than 60 days, but later starts up again. The time for stop payment notices and claims against the payment bond may run from the 61st day of the work stoppage, not the later completion and acceptance of the project (W. F. Hayward Co. v. Transamerica Ins. Co. (1993) 16 CA4th 1101, 20 CR2d 468).
Mistake In Bid On Public Works Contract
A contractor cannot refuse to honor its bid for a public works contract without risking a claim against the bid bond (Pub. Cont. Code § 5101 et seq.). There is an exception for certain kinds of bidding mistakes (Pub. Cont. Code § 5103). Notice of the mistake must be given under the following procedure:
Notice of Mistake in Bid: Deliver notice to the public entity within 5 working days after the bid opening. The notice must explain in detail the scope of the mistake and how it was made (Pub. Cont. Code § 5103).
Substituting Listed Subcontractor On Public Work
Most bids for public works contracts must include a list of subcontractors who will perform more than 1/2 of 1% of the work (Pub. Cont. Code § 4100 et seq.; compare City of Los Angeles Admin. Code § 10.14 which requires listing subcontractors who will do more than 1/2 of 1% or $10,000 worth of the work, whichever is greater). Listed subcontractors can only be changed with the permission of the public agency under the following procedures:
Notice of Inadvertent Clerical Error in Listing the Subcontractor: Deliver notice to the awarding authority, the erroneously listed subcontractor, and the subcontractor who should have been listed within 2 working days after the bid opening (Pub. Cont. Code § 4107.5).
Listed Subcontractor’s Objection to Alleged Inadvertent Clerical Error: Deliver written objections to the awarding authority and the prime contractor within 6 working days after bid opening; failure to timely object amounts to agreement that a clerical error occurred (Pub. Cont. Code § 4107.5).
Notice of Other Request to Substitute a Subcontractor: Public Contract Code § 4107 lists the other grounds for substitution. There is no time limit for one of these substitution requests, but the awarding authority must send notice to the listed subcontractor, by certified mail, stating the reasons why the substitution is sought (Pub. Cont. Code § 4107).
Listed Subcontractor’s Objection to a Substitution: Deliver written objections to the awarding authority within 5 working days after the notice of request for substitution is sent; failure to object amounts to consent to the substitution (Pub. Cont. Code § 4107).
Sub-bidder Promissory Estoppel & Supplier Bid Confirmations
A subcontractor must honor its bid (a) if the prime contractor relied on that bid in preparing its own bid to the owner and (b) if the prime contractor accepts the subcontractor’s bid within a reasonable time (Drennan v Star Paving Co. (1958) 51 C2d 409, 413-15, 33 P2d 757). The same rule does not govern supplier’s bids. Instead, the following procedures apply:
Oral bid under $2,500: Does not have to be confirmed by the contractor. Supplier is held to the bid for 90 days, or 10 days after award of the contract, whichever occurs first (Com. Code § 2205).
Oral bid over $2,500: Confirm supplier’s bid in writing within 48 hours of receipt of the bid (not 48 hours of the bid opening), in order to hold the supplier to that bid for 90 days, or 10 days after award of the contract, whichever occurs first (Com. Code § 2205).
Written bid: Does not have to be confirmed by the contractor. Supplier is held to the bid for 90 days, or 10 days after award of the contract, whichever occurs first – unless the bid specifies a different expiration date for the bid (Com. Code § 2205).
Private Work: Acceptance of “equal” items is not mandatory on private works. However, prudent owners often include an “or equal” clause to get the most economical construction. If there is an “or equal” clause in a private work contract, it will set forth the time limit, if any, for submission of data about the proposed equal.
Sole-sourcing on State or Local Agency Public Work: Solesourcing of a material, product, thing or service is allowed for only four reasons, and, then, only if the awarding authority or its designee (e.g., the city engineer) made a finding that one of the four reasons applies, and that finding is described in the invitation for bids or the request for proposals. If no such justification appears, the agency must accept equals. The four reasons are: (1) to conduct a field test or experiment of the product, (2) to match existing products in use on the particular public work, (3) to obtain a product that is only available from one source, and (4) to respond to an emergency. Public Contract Code §§ 3400(c) and 10129(b).
Time to Submit Or-equal Proposal: The contract documents can set forth the period of time prior to, or after, award of the contract for submission of data substantiating a request for a substitution of an equal item; if no period is specified, the data must be submitted within 35 days after award (Pub. Cont. Code § 3400 for all public agencies except those governed by Pub. Cont. Code § 10129(a) in the State Contract Act, which governs projects of state Departments of Boating & Waterways, Corrections, General Services, Transportation, and Water Resources). Subcontractors who will perform work later in the project must be alerted to the need to submit their “or equal” data within the contract time limit.
Federal Project: The or-equal requirements and sole-sourcing prohibition are contained in the Federal Acquisition Regulations and vary from job to job.
Public Work Preliminary Notice
Public Work Preliminary Notice (Civ. Code § 8034(b)): Neither laborers, nor anyone who has a direct contractual relationship with the direct (prime) contractor (i.e., 1st tier subcontractor or supplier), has to give the notice (Civ. Code § 9300(b)(2)). Anyone else who provided labor, service, equipment or materials for the work (Civ. Code §§ 8022, 8048 and 9100), under authority from a direct contractor (Civ. Code § 8018), subcontractor (Civ. Code § 8046), architect, project manager, or other person having charge of any part of the work, must give the notice. It must be delivered, or sent by certified mail, express mail, or overnight delivery by an express service carrier (Civ. Code §§ 8106 and 8110, but see Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. (2016) 244 CA4th 855, 198 CR3d 335), to the public entity and the direct contractor (Civ. Code §§ 9300 and 9302). If the work is for the California Department of Public Works or Department of General Services, it must go to the disbursing officer of the department constructing the work (Civ. Code § 9302).
The notice only covers labor, services, equipment or materials furnished during the 20 days before the notice was given and any furnished after it was given (Civ. Code § 9304).
If the notice is not given, no stop payment notice is enforceable (Civ. Code § 9500(a)). Failure to give the notice also bars any claim against a payment bond, unless the alternative procedure described under Payment Bond Claim Notice, below, is followed (Civ. Code § 9560(b)).
Federal Project: No Preliminary Notice is required on federal projects. See Payment Bond Claim Notice, below.
Public Work Payment Bond Claim Notice Public Work: If a timely Preliminary Notice is given, no other notice is required (Civ. Code § 9560(a)). If a Preliminary Notice is not given, then the subcontractor or supplier must deliver a payment bond claim notice, or send it by certified mail, express mail, or overnight delivery by an express service carrier (Civ. Code §§ 8106, 8110 and 9562, but see Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. (2016) 244 CA4th 855, 198 CR3d 335), to the payment bond surety and principal, usually the direct (prime) contractor, within 15 days after a Notice of Completion was recorded, and if none was recorded, then within 75 days after completion of the project (Civ. Code § 9560(b)). An attempt has been made to prevent a subcontractor or supplier to a subcontractor (i.e., 2d tier subcontractor or supplier) from using the payment bond claim notice to preserve its payment bond claim when the 1st tier subcontractor received all of the progress payments to which it was entitled (Civ. Code. § 9560(c) and (d)). The language in the statute is hopelessly ambiguous and confusing. However, 2d tier subcontractors and suppliers should give preliminary notices to avoid losing their right to pursue a payment bond claim.
Federal Project: No payment bond notice is required from subcontractors or suppliers to the prime contractor. However, subcontractors of subcontractors and suppliers of subcontractors must give notice to the prime contractor, within 90 days after the last of the labor, services, equipment or materials were provided, stating the amount claimed and the subcontractor to whom the labor, services, equipment or materials were provided. The notice must be delivered by any means that provides written, third-party verification of delivery or in any manner in which a summons can be served (40 USC § 3133).
No Mechanics Lien On Public Work
State or Local Public Work: No mechanics lien is permitted against public property (Civ. Code § 8160; Mayrhoffer v. Board of Education (1891) 89 Cal 110, 111-14, 26 Pac 646). Payment bonds on public works projects substitute for the property against which a mechanics lien would otherwise be permitted.
Federal Project: No state law mechanics liens are effective on federal projects except post offices (Loeffler v. Frank (1984) 486 US 549, 100 LEd2d 549, 108 SCt 1965).
Stop Payment Notice On Public Work
Deadlines exist for service of stop payment notices; they do not have to be served in a window of time as with mechanics liens.
A reduction or release of a stop payment notice “does not preclude the claimant from giving a subsequent stop payment notice that is timely and proper” (Civ. Code § 8128(c)(3)). However, a stop payment notice is only effective against money still in the possession of the owner at the time the stop payment notice is served.
Public Work – Prime Contractor: The prime contractor has no right to give a stop payment notice on a public work (Civ. Code § 9100).
Public Work – Subcontractor or Supplier: Deliver stop payment notice to the pubic entity before expiration of either (1) 30 days after the Notice of Completion or Notice of Cessation is recorded, or (2) 90 days after the earlier of (a) the date when the public entity formally accepted the work or (b) the date, except for state projects, when no work has been done on the project for 60 consecutive days (Civ. Code §§ 9200 and 9356)
Federal Project: No stop payment notice procedure exists for federal projects.
Government Code Claim
Generally, before a contractor can sue a public entity for breach of contract, the contractor must present the claim prescribed by Government Code § 910 within one year of the last breach of the contract (Gov. Code § 911.2). This claim is usually in addition to all of the claims required under the contract. However, there are exceptions.
No Government Code claim is required for disputes arising out of contracts with the state (Pub. Cont. Code § 19100). Disputes on contracts under the State Contracts Act (Pub. Cont. Code § 10100 et seq.) for projects of the state Departments of Boating & Waterways, Corrections, General Services, Transportation, and Water Resources go directly to arbitration (Pub. Cont. Code § 10240 et seq.). Disputes on all other state contracts go directly to court, and the lawsuit must be commenced within 6 months after (1) the agency’s final written decision under the contract claim provisions or (2) if there is no contract claim provision, within 6 months after accrual of the cause of action (Pub. Cont. Code § 19100).
For local agency contracts, a Government Code claim is often required. However, none is required (1) if the contract includes a procedure for the presentation, consideration and payment of claims arising out of or related to the contract (Gov. Code § 930.2), and (2) the contract fails to clearly state that, in addition, a Government Code claim is also required (Arntz Builders v. City of Berkeley (2008) 166 CA4th 276, 289, 82 CR3d 605).
Warning: An attorney usually needs a few days to get the legal papers together. So, he or she cannot be consulted for the first time on the day before the lawsuit must be filed.
Relief from Forfeiture of a Bid Bond (when the public entity refuses to permit withdrawal of a bid resulting from a mistake): File lawsuit and serve summons within 90 days after the date of the bid opening (Pub. Cont. Code § 5102). The lawsuit gets preference over all other civil actions (Pub. Cont. Code § 5107).
Public Work Stop Payment Notice – By a Subcontractor/Supplier: File lawsuit against the public entity and the direct contractor within 90 days after expiration of either (1) 30 days after the Notice of Completion or Notice of Cessation is recorded or (2) 90 days after the earlier of the date (a) when the public entity formally accepted the work or (b), except for state projects, when no work has been done on the project for 60 consecutive days (Civ. Code §§ 9200, 9356 and 9502). If the lawsuit is not timely filed, “the notice ceases to be effective and the public entity shall release funds withheld” (Civ. Code § 9502). Within 5 days after the lawsuit is filed, deliver, or send by certified mail, express mail, or overnight delivery by an express service carrier, a notice of commencement of the action to the persons to whom the stop payment notice was given (Civ. Code § 9354 and 9504).
State or Local Public Work Payment Bond: File lawsuit against the surety and the direct contractor after the claimant ceases to provide work, but not later than six months after expiration of either (1) 30 days after the Notice of Completion or Notice of Cessation is recorded or (2) 90 days after the earlier of the date (a) when the public entity formally accepted the work or (b), except for state projects, when no work had been done on the project for 60 consecutive days (Civ. Code §§ 9200, 9356 and 9558). The time must be counted in exactly that sequence, because the number of days in the month in which the notice was recorded affects the calculation. Thus, if the notice of completion was recorded on April 15 the limitation is: 30 days to May 15 plus 6 months to November 15 (in other words, 7 months from the recording date). However, if the notice was recorded on May 15 the calculation would be 30 days to June 14 plus 6 months to December 14 (in other words, one day less than 7 months from the recording date).
Money Withheld Under a Notice of Civil Wage and Penalty Assessment (Labor Commissioner) or Notice of Withholding for Violation of Prevailing Wage Laws (agency awarding contract): Request a hearing from the office of the Labor Commissioner that appears on the notice within 60 days after service of the notice. The hearing is an administrative proceeding, which can be reviewed by the courts (Labor Code § 1742).
Federal Project Payment Bond: File lawsuit within one year after the last of the labor, services, equipment or materials were provided by the subcontractor or supplier (40 USC § 3133).
By Bernard S. Kamine, ECA Legal Counsel Emeritus