Getting paid on a construction project in California is complicated, and no two construction jobs are alike. Whether you’re an honest construction business that’s struggling to get paid, or a property owner who got burned by a predatory contractor, the answer to each payment question can be difficult to navigate. The situations can vary wildly, from the routine to the totally unique. Peter Ryan, an attorney at Hunt Ortmann in Pasadena, has fielded a number of interesting questions from contractors in California. Here are his answers to three unusual construction payment questions from California.
This article is a special Expert Feature, highlighting answers from a construction payment expert in the Levelset Expert Center. Every day, contractors across the country visit the Expert Center to get advice when they’re having trouble getting paid.
Table of Contents
1. How to write contracts for unpredictable projects
A California roofing contractor was considering an emergency job to repair a leaky roof. Typically, they charge on a time and materials (T&M) basis, using only a verbal agreement. But they’ve run into problems in the past. They asked: How can we provide a contract in writing if we can’t predict the scope of work?
Home Improvement Contract
Mr. Ryan recommended using a Home Improvement Contract that complies with Business And Professions Code (BPC) section 7159. Under California law, the BPC “identifies the projects for which a home improvement contract is required, outlines the contract requirements, and lists the items that shall be included in the contract.” However, it’s not without its limitations. According to Mr. Ryan, “If you use a home improvement contract, you need to provide an actual contract price and thus cannot technically perform your services on a T&M basis.”
Service & Repair Contract
Another option, according to Mr. Ryan, is to use a Service and Repair Contract. However, “the contract amount must be limited to $750 and you must comply with the requirements of Business And Professions Code section 7159.10–7159.14. “The benefit of a Service and Repair Contract is that it can include an Estimated Contract Price not to exceed $750.”
At first glance, it looks like the Service and Repair Contract is only available if the project value is under $750. However, Mr. Ryan offers a creative alternative: Use a separate Service and Repair Contract for each part of the project.
This contractor’s problem is that, no matter how straightforward a construction job appears, the scope of work can be unpredictable. They may uncover a bigger structural problem with the customer’s roof that wasn’t apparent during the estimating process.
To protect the contractor, Mr. Ryan recommends using change orders after the contract is signed. “One way to do it would be to estimate and clearly define your scope of work and to then agree on either a change order or deductive change order if the actual scope of work turns out to be more or less.”
A change order is basically an extension of the contract to accommodate unforeseen changes. Getting approved change orders will protect both parties in the event that a dispute arises in the future.
Ultimately, choosing the right type of contracts to use for your business can make the difference between having the right to get paid, and not being protected.
2. Recovering payments to unlicensed contractors
A California homeowner hired a licensed contractor to build a sunroom addition on their house. Unfortunately, on the day they started work, the contractor’s license was inactive. Not only was the contractor not authorized to work, they also subcontracted an unlicensed electrical contractor whose shoddy work caused “burning in the roof where the wires were frayed and exposed.” Yikes!
Understandably, the property owner was upset. They asked, “How can I get my money back?”
Unlicensed contractors in CA don’t have the right to payment
In California, unlicensed contractors have no right to payment. In this case, unfortunately, the property owner didn’t realize the contractor had lost their license until after they paid him. Mr. Ryan had good news, however, noting that the property owner had the right to get their money back under California’s Business and Professions Code.
According to that law, “a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.”
In short, the property owner has the right to recover all money they paid for unlicensed work.
Using CSLB to recover money from an unlicensed contractor
Mr. Ryan describes the process for successfully recovering money from an unlicensed contractor:
- File a complaint with the California State Licensing Board (CSLB).
- A CSLB investigation “usually includes a free expert who will visit the project and evaluate the claims in your complaint.”
- If the CSLB finds a licensing violation, they will issue a citation against the contractor. “The citation may include a mandate that the contractor pay you damages as a condition to bringing its license current.”
Backed with the CSLB finding, you can file a lawsuit against the unlicensed contractor in California civil court to recover the money. According to Mr. Ryan, payments of smaller amounts may be recoverable using “CLSB mandatory arbitration ($15,000) and voluntary arbitration ($50,000) procedures.”
3. Filing a mechanics lien for loans & labor
A project manager (PM) for a construction company in California personally invested $40k in a property that his company purchased. Not only that, but the PM financed nearly $80k in loans to support the project. After their employer failed to pay wages for almost two months, the PM quit and tried to salvage what they could. They asked the question: “Can I file a lien for the loans and labor?”
Mechanics lien can’t be used for lost investment
A mechanics lien is a claim for overdue balance owed on labor or materials contributed to a construction project. If the proper steps to retain rights are taken, Peter assured that a lien could be a powerful tool. However, he emphasized that the lien option would only apply to unpaid wages, and “not for the loans or investment.”
Mr. Ryan noted that “as an employee of the construction company, you would be entitled to record a lien without preliminary notice for your own work,” but not for the work of the other laborers.
Generally, a mechanic’s lien can be recorded for the reasonable value of the labor, services, materials or equipment you have furnished to the project. However, says Mr. Ryan, you cannot use a mechanics lien to recover money loaned or invested.
Help from construction payment experts – when you need it
No two construction projects are alike. Getting paid for your work can sometimes feel like jumping through circus hoops! Whether in California or Maine or anywhere in between, contractors turn to the Levelset Expert Center for answers to their payment questions. Experts on the forum can provide help with any payment scenario, no matter how unique.
Mr. Ryan is a California lawyer that specializes in the fields of construction, insurance, real estate, and business. Since 2014, Mr. Ryan has represented clients on cases involving contractual disputes, general liability, as well as business and complex tort litigation.
Find contact information on his Expert Profile.