(a)The Legislature finds and declares all of the following:
(1)It is in the best interests of the state and its citizens to ensure that all construction business performed on a private works project in the state that is complete and not in dispute is paid in full and in a timely manner.
(2)Delays in payment for works of improvement and site improvements impose significant financial hardships on contractors, particularly small businesses, disadvantaged business enterprises, and disabled veteran business enterprises.
(3)The lack of clear procedures for resolving disputes related to change orders often leads to costly litigation where a predetermined method could avoid such costs.
(4)Prompt and fair payment promotes economic stability within the construction industry and ensures efficien
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(a)
The Legislature finds and declares all of the following:
(1)
It is in the best interests of the state and its citizens to ensure that all construction business performed on a private works project in the state that is complete and not in dispute is paid in full and in a timely manner.
(2)
Delays in payment for works of improvement and site improvements impose significant financial hardships on contractors, particularly small businesses, disadvantaged business enterprises, and disabled veteran business enterprises.
(3)
The lack of clear procedures for resolving disputes related to change orders often leads to costly litigation where a predetermined method could avoid such costs.
(4)
Prompt and fair payment promotes economic stability within the construction industry and ensures efficient project completion.
(b)
Notwithstanding any other law, this section shall apply to any claim by a contractor, or where authorized pursuant to this article, a subcontractor, in connection to a work of improvement or site improvement.
(c)
For purposes of this section, the following terms apply:
(1)
“Claim” means a separate
demand by a contractor, or where authorized pursuant to this article, a subcontractor, sent by registered mail or certified mail with return receipt requested, for one or more of the following:
(A)
A time extension, including, without limitation, for relief from damages or penalties for delay assessed by an owner under contract for a work of improvement or site improvement.
(B)
Payment by the owner of money or damages arising from work done by, or on behalf of, the contractor pursuant to the contract for a work of improvement or site improvement project and payment for which is not otherwise expressly provided or to which the claimant is not otherwise entitled.
(C)
Payment of an amount that is disputed by the owner.
(2)
(A)
“Owner” means the owner who causes a building, improvement, or structure to be constructed, altered, or repaired, or that person’s successor in interest at the
date a notice of completion is recorded, whether the interest or estate of the owner be in fee, as vendee under a contract of purchase, as lessee, or other interest or estate less than the fee. Where the interest or estate is held by two or more persons as joint tenants or tenants in common, any one or more of the cotenants may be deemed to be the “owner” within the meaning of this section.
(B)
“Owner” shall not include a state agency, department, office, division, bureau, board, or commission, the California State University, the University of California, a city, including a charter city,
county, including a charter county, city and county, including a charter city and county, district, special district, public authority, political subdivision, public corporation, or nonprofit transit corporation wholly owned by a public agency and formed to carry out the purposes of the public agency.
(C)
An owner shall have the right to a designated representative.
(3)
(A)
“Project manager” means a person, partnership, corporation, or other legal entity that is designated by the owner to direct construction and represent the owner during the performance of the services covered under the construction contract and is authorized to make changes, adjustments, and interpretations of the contract in order to facilitate the completion of the project.
(B)
In the absence of the appointment of a project manager by the owner, the owner shall serve as project manager on a project.
(d)
(1)
(A)
Upon receipt of a claim pursuant to this section, the owner to which the claim applies shall perform a reasonable review of the claim and, within a period not to exceed
30 days, shall provide the claimant a written statement identifying what portion of the claim is disputed and what portion of the claim is undisputed.
(B)
The claimant shall furnish reasonable documentation to support the claim.
(2)
Upon receipt of a claim, an owner and a contractor may, by mutual agreement, extend the time period provided in
this subdivision in writing.
(3)
Payment of any undisputed portion of the claim shall be processed and made within 60 days after the owner issues its written statement.
(e)
(1)
If the claimant disputes all or any portion of the owner’s written
response to the claim, or if the owner fails to respond to a claim issued within the timeframe prescribed, the claimant may demand in writing an informal conference to meet and confer for settlement of the issues in dispute.
(2)
Upon receipt of a demand in writing sent by registered mail or certified mail, return receipt requested, the owner shall schedule a meet and confer conference with the claimant within 30 days for settlement of the dispute.
(3)
Within 10 business days following the conclusion of the meet and confer conference, if the claim or any portion of the claim remains in dispute, the owner shall provide the claimant a written statement identifying the portion of the claim that remains in dispute and the portion that is undisputed.
(4)
Payment of any undisputed portion of the claim shall be processed and made within 60 days after the owner issues its written statement.
(f)
(1)
If, following the informal conference, there remains any disputed portion of the claim, the remaining disputed portion of the claim shall be submitted to nonbinding mediation, with the owner and the claimant sharing the associated costs equally.
(2)
The owner and claimant shall mutually agree to a mediator within 10 business days after the disputed portion
of the claim has been identified in writing.
(3)
(A)
If the parties cannot agree upon a
mediator within the time allotted, the contractor may select the mediator to be used.
(B)
If the owner refuses mediation, the contractor may carry out the process described in subdivision (k).
(4)
If mediation is unsuccessful, the parts of the claim remaining in dispute shall be subject to the dispute resolution procedures elected in the written contract of the parties, or, if no such election exists, by final judgment or by operation of law.
(g)
(1)
Failure by the owner to respond to a claim within the time periods described in this section or to otherwise meet the requirements of this section shall result in the claim being deemed denied in its entirety.
(2)
A claim that is denied by reason of the owner’s failure to have responded to a claim, or its failure to otherwise meet the time requirements of the section, shall not constitute an adverse finding with regard to the merits of the claim or the responsibility or qualifications of the claim.
(h)
(1)
Undisputed amounts not paid in a timely manner as required by this section shall bear interest at 2 percent per month.
(2)
Disputed amounts which are later found to be owed through the dispute resolution procedures elected in the written contract of the parties, or, if no such election exists, by final judgment or by operation of law, shall bear interest at 2 percent per month, beginning from the date on which
those amounts would have been due had they not been disputed.
(i)
Nothing in this section shall prevent either party from submitting, or otherwise limit the applicability of, a statutory offer of settlement under Section 998 of the Code of Civil Procedure.
(j)
(1)
If a subcontractor or a lower tier subcontractor lacks legal standing to assert a claim against an owner because privity of contract does not exist, except as provided in paragraph (4),
the contractor shall present to the owner a claim on behalf of a subcontractor or lower tier subcontractor.
(2)
A subcontractor may request in writing, either on their own behalf or on behalf of a lower tier subcontractor, that the contractor present a claim for work that was performed by the subcontractor or by a lower tier subcontractor on behalf of the subcontractor.
(3)
(A)
The subcontractor requesting that the claim be presented to the owner shall furnish the contractor with timely and reasonable documentation to support the subcontractor’s claim to enable the contractor to meet their obligations under subdivision (d) and shall thereafter cooperate with the contractor in the informal conference, mediation, and dispute resolution processes required
pursuant to this section relating to the subcontractor’s claim.
(B)
The contractor shall exercise good faith in fulfilling their obligations on behalf of the subcontractor under subdivisions (d), (e), and (f) and shall make no settlement of any claim to which the subcontractor does not approve, in writing.
(4)
Within 30 days of receipt of this written request, the contractor shall notify the subcontractor in writing as to whether the contractor presented the claim to the owner and, if the contractor did not present the claim, provide the subcontractor with a statement of the reasons for not doing so.
(5)
Nothing in this subdivision precludes a subcontractor from exercising its lien rights and its stop work notice
rights.
(k)
The contractor and subcontractors shall have the right to suspend
performance of their work, without penalty, until payment is received if the following procedure is followed:
(1)
The owner is informed by registered mail or certified mail, return receipt requested, that payment is due pursuant to this section, or where the claim is deemed denied pursuant to subdivision (g).
(2)
Thirty
days after the notice that payment was due pursuant to paragraph (1) is sent to the owner, the contractor or subcontractor sends a 10-day written notice of intent to stop work to the owner by registered mail or certified mail, return receipt requested.
(l)
Any disputed amount which the owner, at any point, agrees to pay, or is found to owe through dispute resolution, by final judgment, or by operation of law, shall, from the date of the agreement or finding, be considered an undisputed amount for the purpose of any timelines or processes established under this article.
(m)
(1)
A waiver of the rights granted by this section is void and contrary to public policy.
(2)
Notwithstanding paragraph (1), all of the following apply:
(A)
Upon receipt of a claim, the parties may mutually agree to waive, in writing, the informal conference and mediation provisions in this section and proceed directly to the commencement of a civil action or binding arbitration, as applicable.
(B)
Owners, contractors, and subcontractors may agree to reasonable change order, claim, and dispute resolution procedures and requirements in
addition to the provisions of this section, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in this section.
(n)
This section shall apply to contracts entered into on or after January 1, 2026.
(o)
This section
shall not apply to the construction of a residential project if the project is not mixed use and does not exceed four stories.