Failure to Prosecute Work (Failure to Perform)


When a Contractor fails to diligently pursue the work, the Construction Administrator and the Director/AVP should call a meeting with the Contractor, identifying a lack of diligent pursuit or non-compliance of the work. The Construction Administrator should present to the Contractor a clear list of items and issues; and emphasize to the Contractor the seriousness of the situation. Give the Contractor an opportunity to correct these issues and to exhibit diligent pursuit (4 to 6 weeks), but notify the Contractor that failure to correct will bring into play Public Contract Code Section 10843(a), a five-day notice. Written documentation of the discussions and agreements in this meeting shall be sent to Contractor. If the Contractor does not remedy the problem, discuss the next action with the Director/AVP. The Director/AVP is encouraged to discuss the situation with the Chief of Construction Management, CPDC, and the campus attorney of the Office of General Counsel. Construction Administrator may proceed with PCC Section 10843 subsections (a) or (b) after approval from the Director/AVP. The Construction Administrator should copy the bonding company on such correspondence. 

Punchlists: Campuses may use Public Contract Code Section 10843(a) to force completion of a punchlist. Document issuance of a complete and detailed punchlist. At the end of each week (or every two weeks on a large project), review and document the progress on the punchlist. A punchlist, even on a large project, should be completed in four to six weeks. If at the end of four-to-six weeks, you have a documented case of lack of diligent pursuit, issue a five-day formal notice to the Contractor under Public Contract Code Section 10843(a). Be prepared to take over completion of the punchlist if the Contractor continues to fail to diligently address the punchlist, and deduct the cost of completion from the Contract amount. This process gives you the ability to take control of the project and to file completion. Bankrupt Contractor: When a Contractor goes bankrupt, send a five-day notice to the Contractor, pursuant to Public Contract Code Section 10843(b), with a copy of the letter to the bonding company. The bonding company needs to enter into a takeover agreement, and assign a takeover Contractor. This may take as long as two to three months.


  • SUAM Sections 9826-9827
  • CM Procedures Manual, Section 28, Failure to Diligently Pursue or Bankrupt Contractor 
  • Law of D&C, Dec. 2017, Section XIV, Failure 
  • PCC Sections 10843-10850


  • Punch List, Form 702.07
  • Project Closeout Checklist, Form 702.02P

Closeout: Insurance / Occupancy / Liquidated Damages / Contractor Evaluations / Completion / Release of Retention / Retain Project Records / Projects Funded with TaxeExempt Bonds


Insurance for Completed Projects: When the Construction Administrator is drafting the letter transmitting the notice of completion to the County Recorder for recordation, copy Campus Risk Manager, so that the Risk Manager may arrange to put the project into the CSU Property Insurance Program. Also copy them on the letter to the contractor transmitting the recorded notice of completion, so that they have the official document. 

Occupancy: CGC Article 4.09 allows CSU to occupy all or a portion of the project prior to completion. The Construction Administrator should require that a detailed punch list be produced prior to any occupancy, and also a written certification of occupancy should be obtained from the State Fire Marshal's Office. If the elevators are to be used the State Elevator Inspector must also sign a certificate of use. The detailed punch list is required at this stage so as to properly determine the responsibility for any work remaining. To document occupancy: The Contract General Conditions require the Construction Administrator to issue a field instruction to the Contractor, noticing the Contractor that the campus will be taking beneficial occupancy of all or portions of the project on a specific date at a specific time, to be followed up with a change order. A change order can then be executed at a later date. If the Contractor's insurance premiums are increased due to liability for occupancy, the change order should include these additional costs. Normal procedure is to assume liability for occupancy and place the building and occupants in the State's property insurance program. The Trustees may reduce liquidated damages on all or a portion of the project, in accordance with Contract General Conditions, Article 7.02. 

Important Notes

  • Such occupancy shall not constitute acceptance; 
  • Does not relieve Contractor of responsibility for correcting deficient work found at any time before formal acceptance and during the guarantee period 
  • Does not stop liquidated damages, but may cause them to be modified. Unless the contracting parties agree in writing to start warranty early, the minimum 12-month warranty period starts upon the acceptance date as stated on the Notice of Completion.

Liquidated Damages: Liquidated damages shall be assessed on all projects that are not completed within the contract time. Notify the Contractor that the contract time has expired and that liquidated damages are in effect. Request the Contractor submit reasons, if any, why the contract date should be extended. Liquidated damages cease on the date of acceptance on the Notice of Completion. Any negotiations of final claims and time overruns which may relieve liquidated damages shall include the concurrence of the appropriate University officer, and shall be placed on a change order referencing the claim settlement as negotiated, with a date. Include standard claim settlement language on the change order. Refer also to SUAM Section 9833.01. 

Contractor Evaluations: Construction Administrator will file a Contractor Evaluation with the Trustees (CPDC) for all major projects. It aids in the Contractor prequalification process. As part of the prequalification standards, the Prequalification Coordinator is retrieving a minimum of three references for every contractor requesting prequalification. If you are called upon to submit a reference for a contractor, please do so timely. 

Retention Payment: Process the contractor’s final payment request (retention payment) timely. Refer to applicable statutes governing prompt payment of progress billings. Public Contract Code Section 7107 contains requirements that specifically address timely payment of retention. Section 7107(c) requires release of retention within 60 days of completion. Completion is then defined by the statute with four different meanings. Meaning number (2) is the only one consistent with Public Contract Code Section 10851, which is specifically intended for the Trustees rather than a generic requirement, and is also consistent with the Contract General Conditions. That specifically addresses acceptance of the project as complete. The Construction Administrator should be aware of the other three meanings of completion by reviewing the statute. They all involve a cessation of labor, but do not address final completion of the work. Section 7107(f) addresses a potential charge of two percent per month that may be assessed against a public entity for not making timely payments in accordance with the provisions in the section. Therefore, if the retention payment is processed at the end of the 30-days lien period following recordation of the Notice of Completion, this statute should easily be complied with providing the “release” of retainage has occurred within 60 days from the date of acceptance as complete. This requires very timely handling of both the recordation and the processing of the final payment that is the intent of both applicable statutes. 

Retaining Project Records: It is strongly recommended that project records be retained a minimum of five years, but preferably 10 years to assist in any latent defect claim. Retainage of approved submittals and shop drawings, plus inspection and testing records, are invaluable for latent defect claims. Prior to destruction, the Construction Administrator shall make a copy of the contract and bonds, notice to proceed and completion. Also make a list of the service agreements (inspection, testing and design) for that project. Retainage of as-built plans and operations and maintenance manuals should be for the life of the building or equipment as applicable. 

For all projects funded with tax-exempt bonds, including general obligation, lease revenue, and systemwide revenue bonds, campus must demonstrate compliance with Internal Revenue Service tax codes and retain records related to private activity use for subleased areas and for federal research grants in campus facilities during the life of the tax exempt bonds plus five years, typically a total of 35 years. For more information, campus shall review and follow SUAM IV section 9030.02.​



  • Certification of Occupancy & Completion/Release of Retention, Form 702.02-OCR 
  • Notice of Completion, Form 702.02 
  • Contractor Performance Evaluation, Form 703.13