Filing a mechanics lien is arguably the most effective payment recovery method there is in construction. However, a mechanics lien can only be attached to private projects. Construction participants working on public works must look to other tools to ensure that they get paid for their hard work.
The most obvious payment dispute solution for public projects is to make a bond claim. But what if a project does not have a bond? In that case, you can serve a stop payment notice to intercept payment for your client.
Serve a Stop Notice for California Public Works in Minutes Send Online Today
California is one of the few states that allow construction participants to serve a stop notice and legally mandate the notice recipient to withhold payment. This guide details the process for serving a California stop notice, specifically in public projects.
- What is a California stop notice for public works?
- When do you use a stop payment notice for public works in California?
- Who can serve a stop notice for public works in California?
- How to serve a California stop notice
- Best practices for serving a California stop notice for public works
What is a California stop notice for public works?
First, let’s discuss what a stop notice, or stop payment notice, is. This notice is a document that lets a construction participant intercept the payment flow between higher-tier parties.
Say, for instance, you are a subcontractor hired by a general contractor. If you have a payment claim against the general contractor, you may serve a stop payment notice on the government entity that contracted the project so they withhold payment to your client. This could finally force the general contractor to release your payment, or you could also perfect your stop notice and get the public entity to hand you your payment directly.
When do you use a stop payment notice for public works in California?
You may be wondering, “Aren’t public projects bonded? Should I not make a claim against the payment bond instead?”
Yes, you could pursue a payment bond claim in order to get paid. However, note that not all public works projects in California have a bond attached to them. In California, only public projects worth over $25,000 are required to have a bond. Otherwise, general contractors are not necessarily obligated to get a bond.
A stop notice is then a good payment recovery method for public works that are unbonded. Instead of making a bond claim, you may serve a stop payment notice on the party who hired your client and freeze their funding.
Who can serve a stop notice for public works in California?
Subcontractors, material suppliers, and parties who have no direct contract with the public entity that contracted the public project may serve a stop notice in California. However, these parties must comply with the California 20-day preliminary notice requirement in order to retain their stop notice rights.
How to serve a California stop notice
1. Prepare your California stop notice form
What information should be written on a California stop notice form for public works?
California laws only require the following information:
- A general description of the work to be provided and an estimate of the total amount in value of the work to be provided
- The unpaid amount being claimed
Note that the amount being claimed in a stop notice must be limited to the amount due at the time the stop notice is served. This means that you may not serve a stop notice to claim payment for the services that you have not yet provided.
For completion, you may also include the following information:
- Your name and address
- The name and address of the party to whom the labor or services were provided
- The jobsite location
The stop notice must also be signed and dated by you or your representative.
2. Serve your California stop notice on the intended recipient
On whom must you serve the California stop notice for public works?
According to the California Civil Code, the following parties must receive your stop notice for public works project:
- In the case of a public works contract of the state, hand the California stop notice to the director of the department that awarded the contract.
- In the case of a public works contract of a public entity other than the state, hand the California stop notice to the office of the controller, auditor, or another public disbursing officer whose duty it is to make payment pursuant to the contract.
How do you serve a California stop notice for public works?
The California stop notice must be served via certified mail with return receipt requested. You can also send one online through Handle.com.
When is the deadline for serving a California stop notice for public works?
The deadline for serving a California stop notice for public projects falls on the earlier date between the two:
The deadline is strictly enforced. Your California stop notice will not take effect unless you served it on or before the applicable deadline.
What happens after you serve a California stop notice for public works?
Upon receiving your stop notice, the public entity who contracted the project will be legally obligated to withhold the claimed amount from the general contractor.
What can a general contractor do after a stop notice has been successfully served?
If a general contractor wishes for the withheld payment to be released, they have the option of filing a bond to obtain payment release. The payment bond must be at least 125% percent of the amount claimed in the stop notice, and it must also allow a claimant to recover enforcement action costs if they end up winning the suit.
Other than filing a bond, a general contractor may also serve the public entity an affidavit that questions the validity of the stop notice. The affidavit must include:
- An allegation of the grounds for release of the withheld funds. Valid grounds for release are listed under California Civil Code Section 9400.
- A demand for release for all or a portion of the withheld amount.
- A statement of the address of the general contractor to which the public entity may send a mail or any further notice.
After serving the affidavit on the public entity, the public entity will inform the claimant about the general contractor’s affidavit. The party who initially served the stop notice will have between 10 and 20 days to issue a counter-affidavit. If no valid counter-affidavit is served, the public entity will at once release the funds to the general contractor.
3. Enforce your California stop notice
In order to recover the withheld payment, you must enforce the stop notice. Enforcing a stop notice means filing a legal action to recover your payment.
In California, you may not enforce a stop notice until after 10 days since you sent it. You also cannot start an enforcement action beyond the 90-day period following the deadline for serving a stop notice. This means it is best to enforce your California stop notice as soon as you are allowed to.
After initiating a legal action to enforce the stop notice, you must serve the public entity with a notice telling them that you have commenced legal action against them. This notice must be served in the same manner the original stop notice was served, i.e., via certified mail with return receipt requested.
If you win the legal action, the stop notice will be enforced and the withheld payment will be granted to you to satisfy your claim. If, on the other hand, you do not enforce your California stop notice within the filing period, your stop notice will no longer be effective and the frozen funds will be handed over to the general contractor.
Best practices for serving a California stop notice for public works
1. Serve a valid 20-day preliminary notice to preserve your stop notice rights
In California, you may not enforce a stop notice unless you have served a valid 20-day preliminary notice. Failing to serve a valid California preliminary notice is enough grounds to revoke your stop notice and release the withheld payment, so be sure that you comply with the state’s preliminary notice requirement.
2. Include only the amount due for the services that you have already provided
You should never claim an amount for services that you have not yet performed. California requires a stop notice to cover only the unpaid amount for the services that have been furnished up to the date when the stop notice is served. Keep this in mind as failing to follow this rule will be fatal to your stop notice rights.
3. Remember to enforce your California stop notice for public projects
If you do not enforce your California stop notice within the prescribed period, the stop notice expires and the public entity may release the amount that they withheld from the general contractor. In order to recover your payment from the withheld amount, remember to initiate legal action to enforce your California stop notice.