In California, a prime contractor must file a payment bond on all state public works projects over $25,000. Anyone who would have the right to a stop notice on the project also has the right to make a claim against the payment bond. That includes subcontractors, suppliers, equipment lessors, design professionals, trust funds and others.

Note: If the project is a private project or if the project is owned by an agency of the Federal government, the rules below do not apply.

Are there any preliminary steps that a claimant must take to protect its rights against a payment bond?

Yes. A claimant must serve the owner and the prime contractor with a 20-day preliminary notice. Claimants who fail to give proper notice may still make a claim against a payment bond if they give written notice to the principal on the payment bond and to the surety on the bond within fifteen days after recordation of a notice of completion or, if no notice of completion is recorded, within seventy-five days after completion of the work of improvement.
In California, a prime contractor must file a payment bond on all state public works projects over $25,000.

When must the notice be given?

A claimant may give a 20-day preliminary notice even before starting work on the project. That notice can also be given at any time during performance of work on the project, but it will only be effective to protect a claimant’s interest, for stop notice purposes, for the period from 20 days prior to its service through the end of the project. A claimant may also give written notice to the principal on the payment bond and to the surety on the bond within fifteen days after recordation of a notice of completion or, if no notice of completion is recorded, within seventy-five days after completion of the work of improvement. Note: The time calculation for the notice is different from mechanic’s liens and stop notices. The notice must be served personally or by registered or certified mail, return receipt requested anywhere the prime contractor maintains an office, conducts business or resides. You can usually obtain a copy of the bond from the public entity if you send them a written request.

What information must be included in the 90-day preliminary bond notice?

The notice should include the identity of the party to whom the claimant furnished its work, a substantially accurate statement of the amount claimed, a description of the public works project involved and the claimant’s signature.

What must a claimant prove to recover against the payment bond?

A claimant must prove that: (1) it is one of the kinds of claimants allowed to recover under the public works remedies provided for in the code; (2) that the claimant timely served either a preliminary 20-day notice or a bond notice; (3) that the claimant sued to collect against the bond on time and in the proper court; and (4) that the claimant has not been paid everything it is owed on the project.

Are there time limits on filing litigation to enforce a California Payment Bond Claim?

Yes. An action to enforce a payment bond claim must be filed within six months after the period in which stop notices must be filed. A public works stop notice must be filed within 30 days after the recording of a notice of completion or notice of cessation. If neither of these notices is recorded, the stop notice must be served within 90 days after completion or cessation of labor.

If litigation is necessary to resolve the dispute, can either side recover its attorney’s fees and costs?

If the claim is based on the contract and the contract includes a provision for the payment of attorney’s fees and costs to the prevailing party, that party will be entitled to an award of attorney’s fees and costs. The California code also provides for an attorney’s fee award to the prevailing party in an action on a payment bond. However, even where an attorney’s fee award is made, courts rarely make an award that is sufficient to make the prevailing party wholly responsible for all the costs of the litigation. It is unwise to proceed with litigation under the misconception that if you win the other side will pay all your costs.

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.