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  • Pam Scholefield

Yes, Virginia, There Is a Law That Helps Contractors!

Updated: Apr 21

Though they may seem as farfetched as Santa Clause, there really are some laws that are designed to help contractors.  Some are better known, like mechanic’s lien laws, but some are tucked away as if waiting to be discovered by some fortunate contractor who happens upon them. 

This post will explore some of those not-often-talked-about-laws in California.

Some Public Projects Protective Statutes

Let’s start with a couple of hidden gems in the California Public Contract Code.  Most contractors are familiar with terms of a contract that state things such as: “By submitting a bid, Contractor warrants and represents that it has inspected the site and is familiar with the site conditions and has reviewed all drawings, specifications, and all other Contract Documents and represents that there are no site conditions or errors in the Contract Documents that would result in additional cost above Contractor’s bid price or increase Contractor’s time for performance.”   

This type of provision makes it seem as if the contractor is going to be responsible for guaranteeing the owner that the drawings and specification are complete and correct. 

But, California Public Contract Code (“PCC”), Section 1104 does not allow this on non-design-build projects.  Specifically, the PCC states: “No local public entity, charter city, or charter county shall require a bidder to assume responsibility for the completeness and accuracy of architectural or engineering plans and specifications on public works projects, except on clearly designated design build projects. Nothing in this section shall be construed to prohibit a local public entity, charter city, or charter county from requiring a bidder to review architectural or engineering plans and specifications prior to submission of a bid, and report any errors and omissions noted by the contractor to the architect or owner. The review by the contractor shall be confined to the contractor’s capacity as a contractor, and not as a licensed design professional.”

What this means is that, though a contractor may be required to review the drawings and specifications and advise the owner if the contractor finds errors, the contractor can’t be held liable for the errors of deficiencies in the design documents provided by the owner.  This also means that, even if the contractor fails to recognize errors in the drawings and specifications, the contractor can’t be held liable if the errors may have been detected by a licensed engineer or architect, but not necessarily by a contractor.    The battle now becomes proving that an error in the drawings or specifications would not have been reasonably detected by a contractor.

There is another PCC section that helps ensure that a prime contractor doesn’t substitute out a listed subcontractor for a project unless for legitimate purposes.  This statute was designed curtail bid-shopping by the prime contractor after the project bids.  The statute is Public Contract Code, section 4107, and one of the provisions in this section guards against the prime contractor forcing bad terms down a listed subcontractor’s throat. 

Some prime contractors threaten to substitute out the subcontractor when the subcontractor refuses to enter into a contract that differs from the subcontractor’s bid price or differs from the “general terms, conditions, plans, and specifications for the project involved or the terms of that subcontractor’s written bid.”   In order to take the best advantage of this law, subcontractors should put together a strong set of terms to include with their proposals to prime contractors.

Some Private Project Protective Statutes

For private projects, there are a couple of statutes that protect the prime contractor’s right to payment beyond the prompt-payment statutes that impose monetary penalties when the owner unlawfully holds payment.

One of the code sections allows a prime contractor on a private project to require security from the project owner to ensure payment to the contractor.  Civil Code, Section 8700 et seq. allows a contractor on most commercial private projects, with a contract price greater than $5,000,000, to require that the owner of the project, if it is the owner of the property, to provide a bond or irrevocable letter of credit, or to deposit money in an escrow account, in the amount of at least 15% of the contract price.   The security would be available to the contractor in the event owner defaults on payment.   If the owner does not provide a bond, letter of credit, or escrow account within 10 days after contractor provides a written demand to the owner, the contractor may suspend work until the owner provides the security.

Another set of statutes allow a contractor to stop work due to an owner not making timely payments.   Civil Code, Section 8830 et seq. allows a contractor to serve and post a “stop work notice” on the project under the following conditions:

1.       Payment by the owner is 35 days or more late to the contractor when the contractor has performed satisfactorily;

2.       The contractor posts a notice on the jobsite and at the  main office of the site (if there is one) of its intent to give a stop work notice five (5) days before giving the owner the stop work notice; and

3.       At the same time the contractor gives the stop work notice to the owner, the contractor needs to give a copy of the stop work notice to all subcontractors that are in direct contact with the contractor.

If the contractor is not paid within 10 days after notice is given, all work on the project can stop so that the contractor and subcontractors don’t continue to spend their own money to keep the project going if the owner isn’t going to pay, or play, fair.

As with all laws, there are some caveats that contractors need to understand in order to use these laws to their best advantage.  But, the good news is that, if you take time to find and understand these laws, as a contractor you will have more choices in your bag of tricks to succeed.

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