Infrastructure:

Construction Payments

Payment Request Processing and Penalty

Description:

Construction Contractor Payment Requests shall be paid in accordance with Public Contract Code Section 10853. From the date a valid and complete pay request is received the State has 39 calendar days to process the check, or pay interest at the legal rate provided in the Code of Civil Procedure, Section 685.010.

Untimely payments are a continuing source of contractor complaint and claims, and may lead to non-performance. Payment Requests should be prioritized and processed quickly, to not push the statute penalty limit. If the Construction Administrator has an issue with the payment request, either resolve it immediately or send it back with notification. Do not delay processing! Public Contract Code Section 10853 stipulates that any payment request found not to be suitable shall be returned no later than seven days after receipt accompanied by a document stating why the payment request is not proper. 

In the event that payment to Contractor is late, the basic formula for payment of the interest is as follows: (amount of payment * 10%)/365 = amount of penalty per day. 

The penalty starts on the 40th day. The Contractor does not have to bill for it. It is Trustees’ responsibility to pay the penalty. 

CSU is not subject to the Prompt Pay Act, Government Code Section 927 et seq., which requires state agencies to calculate and pay late penalties to vendors who do not pay their invoices within a specified period of time.

References:

Forms & Templates:


Stop Notices

Description:

Who May File a Stop Notice: Except for original contractor, anyone or any business entity performing labor upon or bestowing skill or other necessary services on, or furnishing materials or leasing equipment on the project; laborers, which includes a labor group, or union. Assignees of stop payment notice claimants may not file. 

Filing of Stop Notice: When the Construction Administrator receives a Stop Notice, s/he shall determine that the stop notice claimant is either a first tier or listed subcontractor, or has on file the claimant's submitted 20-day preliminary notice, which is required for 2nd tier subs and suppliers. The Construction Administrator then sends a letter to the general contractor with a copy to the claimant advising the general contractor that such action has transpired, and informs them that 125% of the stop notice value shall be retained until the matter is resolved. File a copy of the preliminary notice, if not a listed subcontractor, with copy of stop notice letter and original stop notice. Keep envelope in which stop notice is transmitted in order to defend date of transmission. 

Affidavit and Demand for Release: The general contractor may file an Affidavit and Demand for Release, which serves to challenge the validity of the stop notice. Once an Affidavit and Demand for Release is received, the Construction Administrator must transmit this to the filer of the stop notice using the Affidavit and Demand for Release letter, which advises them that they have 15 calendar days to file a counter affidavit, or the stop notice will be deemed invalid. 

Counter Affidavit: If the subcontractor files a timely counter affidavit, transmit it to the general contractor using a letter of Counter affidavit, advising the general contractor that we will continue to honor the stop notice. 

Release of Stop Notice: Once the dispute that generated the stop notice has been resolved, the Construction Administrator should receive a stop notice release, which will then end the matter. When a stop notice has been unconditionally released or bonded around, send an acknowledging letter to the Contractor with a copy to the claimant. 

Release of Retention Funds: If the time expires on a stop notice by the subcontractor failing to file suit 120 days from recordation of the Notice of Completion, the Contractor may bill for the stop notice retainage, and the Construction Administrator will process it for payment. Be careful in releasing the retainage too hastily. A stop notice action may be served elsewhere on the campus or to General Counsel and may meet the deadline without the Construction Administrator’s knowledge. If the Construction Administrator should release retainage and a short time later find an action was commenced in a timely manner, request Accounting to put a stop on the payment. Prior to approving the final payment to the Contractor, the Construction Administrator must check to see that all stop notices are satisfied, either by an unconditional release or by bonding around, or the time limit for initiating an action has expired. 

Continue to hold stop notice amounts until released, bonded, or the limitation time runs out. The release must be unconditional, or a bond must be posted in amount of 125% of the face value. Once the CSU accepts the bond to release a stop notice CSU cannot relinquish possession of this bond at the contractor’s request. The bond remains in the CSU’s possession until the stop notice is released.

Within 90 days after the expiration of the lien period, 30 days after the recordation date of the Notice of Completion, the stop notice claimant must either resolve the issue with the Contractor or file a lawsuit. If neither of these are done after a total of 120 days after the recordation date of the Notice of Completion, then CSU must release the money withheld to the Contractor. If funds are held from payment due, the Construction Administrator may direct the Contractor to process a payment request in the release letter. 

Late Stop Notices: If the stop notice is filed later than the 30-day period following the Notice of Completion recordation date, the request is too late and shall not be honored. The 30-day period must be carefully calculated. A stop notice mailed on the 30th day is acceptable, since statutes do not say it must be received within 30 days. 

Records Management: Maintain a stop notice log of all stop notices, including amounts held, releases, etc. This will be very helpful at the end of a project, when determining how much to hold in retention. File Stop Notices, Affidavits, Counter affidavits, Releases and any stop notice correspondence together for each claim. For those stop notices that were accompanied with a $10.00 check and a request for a copy of the recorded Notice of Completion, file the checks in the contract file, where the Notice of Completion is placed, so that you will remember to send copies to these requestors. The checks should be deposited in the project account.

References:

  • SUAM Sections 9810, 9811, 9812, 9813
  • CM Procedures Manual, Section 26
  • Law of D & C Manual, May 2019, Section XV, Stop Notices
  • Civil Code Sections 8100 et seq. and 9100 et seq.

Forms & Templates:

  • N/A