Legal Question in Construction Law in California

Re: assessing late fees for non-payment of services completed

How quickly you must be paid and what the late charges should be are subject to a number of variables. There are many "prompt payment" statutes on the books and how soon you must be paid depends upon whether the payment you're looking for is a progress payment, a retention payment, whether it's for private works or public works. When you must be paid can also depend upon the terms of your contract and whether you're a prime (general) contractor or a subcontractor.

Let's take one scenario, though. Assuming that you contracted directly with the owner of a private residence, all progress payments must be made within 30 days following your demand on the owner for payment. This assumes that there is no dispute about the work performed. If the owner doesn't pay up within 30 days, the penalties are pretty severe. The undisputed amount draws a penalty of 2 per cent per month ON TOP OF any interest provided for in the contract. If there is no percentage stated in the contract, you can usually get legal interest of 10% per year. So, if your contract calls for 1 1/2% interest on overdue bills, you can theoretically get 42% annual interest on the undisputed, overdue amount. My experience, however, is that the owners nearly always dispute some portion of the work. What the owners frequently do, however, is withhold the entire payment instead of just the amount in dispute. In one case I had, the owners withheld the entire $5,700 payment when the only dispute was over an item that cost less than $50. The owners eventually had to pay over $17,000 in interest, penalties and attorney's fees on the $5700 payment.

The prevailing party in any litigation or proceeding to resolve the dispute is entitled to having their attorney's fees paid by the other side. Since attorney's fees are often the tail that wags the dog, this is a very, very important provision if you don't already have an attorney's fees clause in your contract.

This is just one scenario. Your situation may, of course, be different, but be assured that if you're a contractor, there's a prompt payment statute somewhere that deals with your situation.