Overview

SB 1286 (Mountjoy), signed by Governor Wilson on August 10, 1995, was jointly sponsored by the American Institute of Architects, California Council (AIACC) and Consulting Engineers and Land Surveyors of California (CELSOC) to enforce prompt payment for works of improvement. The legislation was a response to the growing trend by public owners to delay, without cause, payments to design professionals.

The law applies to written contracts for private works of improvement entered into on or after January 1, 1996, and is divided into three areas: private works of improvement, public works of improvement, and public works of improvement which include the use of a subcontractor. The three areas are broken down as follows.

The Law

Section I. Written Contracts for Private Works of Improvement: Relates to contractual relationships between private contracting parties and design professionals.

• The parties may agree to specifically include in the written contract a late payment penalty in lieu of any interest otherwise due as specifically set forth in the written contract;

• This penalty shall be separate and in addition to the design professional’s liens, mechanic’s liens and stop notices for works of improvement, as specified, and;

• Construction loan funds held by a lender pursuant to a construction loan agreement are not applicable under this section of law.

Section II. Written Contracts for Public Works of Imrovement: Relates to contractual relationships between public agencies and design professionals.

• The public agency shall pay to the prime design professional any progress payment within 30 days of receipt of a written demand to pay and the final retention payment within 45 days of receipt of a written demand to pay;

• The parties may agree to specifically include in the written contract a late payment penalty of 1 ½ percent of the unpaid amount per month, in lieu of any interest otherwise due;

• The prevailing party in an action to collect amounts withheld or untimely paid in violation of this provision shall be entitled to reasonable attorney’s fees and costs.

• This penalty shall be separate and in addition to the design professional’s liens, mechanic’s liens, and stop notices for works of improvement, as specified;

• State agency contracts subject to Section 926.156 and 926.17 of the Government Code are exempt from the provisions of this law, and ;

• Construction loan funds held by a lender pursuant to a construction loan agreement are not applicable under this section of law.

Section III. Public Works of Improvements/Sub-consultants:Relates to contractual relationships between prime design professionals and sub-consultant design professionals.

• Prime design professionals who hire sub-consultant design professionals are responsible to pay the sub-consultant design professionals the amount due for payment of services not later than 15 days after receipt of progress and final payments;

• Good faith disputes may allow the prime design professional to withhold from payment an amount not to exceed 150 percent of the disputed amount which shall not be subject to the penalties of this section;

• Any amount wrongfully withheld or not timely paid to the sub-consultant design professional shall be entitled to a penalty of 1 ½ percent of the withheld amount, in lieu of an interest otherwise due, per month, for each month withheld;

• The prevailing party in an action to collect amounts withheld or untimely paid in violation of this provision shall be entitled to reasonable attorney’s fees and costs;

• This penalty shall be separate and in addition to the design professional’s liens, mechanic’s liens and stop notices for works of improvement, as specified, and;

• Construction loan funds held by a lender pursuant to a construction loan agreement are not applicable under this section of the law.