Automated Payment System Hiccup Leaves California Invoices Unpaid

Feb. 13, 2018

Thousands of contractors are unpaid after working on construction projects in San Francisco. A new payment system went live last summer to replace the aging system first implemented in 1980, according to KTVU Fox 2.

There were initial glitches with the system, but most were ironed out. However, there are at least 4,000 invoices that have not been paid. “We have made a lot of payments using this system so the fundamentals are working, but we’re not yet where we need to be and want to be and we’re sorry for any hardship we’ve provided some contractors,” said San Francisco Controller Ben Rosenfield to KTVU.

Unfortunately, these payment problems flow downstream and affect subcontractors and material suppliers. On public projects in California, lower tier entities can serve a stop notice and file suit against the payment bond, which is required to be posted by contractors. The bond must be equal to 100% of the total amount of the contract price, according to NACM’s Secured Transaction Services. Contracts under $25,000 do not require a bond.

Preliminary notice should be given to the contractor, public agency and surety within 20 days of first furnishing, but all is not lost if it is not. If a prelim notice is not filed, claimants can still give notice to the surety and principal within 15 days of recording the notice of completion or 75 days after completion if the completion notice wasn’t filed. This will only be for claims against unpaid balances.

For public stop notices, a withholding notice must be given to the contractor and public agency within 20 days from first furnishing. The stop notice must be served within 30 days if there was a notice of completion, notice of acceptance or notice of cessation, but if not, the stop notice must be served within 90 days of completion or cessation of work. Legal action can also be taken against the bond and stop notice.

-Michael Miller, associate editor

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