An Administrator's Guide to California Private School Law

Chapter 17 – Construction

2. S TOP W ORK N OTICE If the school fails to timely pay its contractor, that contractor has the right to rescind the contract, abandon the job, and seek the reasonable value of work already performed. 2362 The more likely approach a contractor may take is to temporarily stop work on the project. If the school does not pay the contractor within 35 days after the date payment is due, and there is no dispute as to the contractor’s performance, the contractor may give the school a stop work notice. 2363 This notice informs the school that the contractor will stop work within 10 days if the undisputed amounts are not paid. 2364 The contractor should release the stop work notice if the school makes the undisputed payments within 10 days. The contractor or school may seek an expedited judicial determination of liability for the amount alleged due if the school does not make the payment within 10 days after a stop work notice is given. 2365 3. R ETENTION Retention is a form of security generally held back by the project owner from prior payments due to the contractor for work previously performed. 2366 The school may retain a certain percentage, usually 5 to 10 percent, of each payment due a contractor to ensure the contactor will achieve final completion of the project. For example, if a contractor has a $10,000,000 contract to modernize 100 classrooms, the school would typically owe approximately $100,000 after the contractor completed 99 classrooms. The contractor may forego that $100,000, leaving the project unfinished, to take another $10,000,000 contract. If the school had retained 10 percent of payments due on the project, the school would owe the contractor $1,100,000 on the contract. This amount would likely be sufficient incentive to ensure the contractor completes the project. A school must pay all retention to a contractor within 45 days after completion of the work. 2367 If a good faith dispute exists between the school and the contractor as to a retention payment due, the school may withhold up to 150 percent of the disputed amount from the final payment. 2368 The contractor may finish the work in dispute to permit it to receive any withheld retention. If the contractor provides the school notice that it has completed the work in dispute, the school has 10 days to advise the contractor if it accepts or rejects that work. 2369 The school must pay any withheld retention within 10 days after its acceptance of the work in dispute. 2370 If the school fails to timely pay undisputed retention, it will owe a penalty of two percent per month on the amount wrongfully withheld. 2371 The prevailing party in any legal action to collect the wrongfully withheld retention amount is entitled to costs and attorneys’ fees. 2372 4. W ITHHOLDING F OR M ECHANICS L IEN O R S TOP P AYMENT N OTICE A school may, but is not required to, withhold the amount of any mechanics lien claim from payment to a contractor during the pendency of an action on that lien. 2373 Additionally, a school must withhold a sufficient amount due to a contractor upon receipt of a stop payment notice to pay the claim stated in that notice. 2374 (See Sections 9D and 9E for more information on Mechanics Liens and Stop Payment Notices.)

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 576