If you’re a contractor, getting paid promptly is a very important part of staying in business. The same is true for subcontractors, who must often wait on a contractor to be paid before they can be paid for a completed job.
To reduce problems for contractors and subcontractors, some states have enacted prompt payment legislation.
These rules and regulations help ensure that contractors are paid by state agencies in a timely manner, also allowing them to pay their subcontractors more easily.
Does California Have a Prompt Payment Act?
The short answer is yes. California does have this act, and it has specific requirements that must be met.
Understanding the California Prompt Payment Act can help you receive payment for invoices sent to state agencies in a reasonable amount of time. Delayed payment can come with late fees that can quickly add up over time.
If you haven’t been paid by a state agency and need legal support to collect on your invoice, working with an attorney can help enforce your rights. The same is true for subcontractors who haven’t been paid by contractors completing work for these agencies.
What Does the California Prompt Payment Act Say?
One of the biggest questions people have about the Act is how long does a state agency have to pay a contractor? Another common question surrounding the Act is how long does a contractor have to pay a subcontractor in California?
These are important questions to help contractors and subcontractors know and understand their rights, and help ensure that suppliers can be paid in a timely manner.
The Act states that state agencies need to pay any invoice within 45 calendar days of receipt, provided that the invoice is:
- Properly Submitted
Any agency that fails to pay in the required time frame when the invoice meets the conditions is required to pay late payment penalties. The late-paying agency must also automatically calculate the late fees and send them along with the invoice’s payment. Understanding how much interest you can charge on overdue invoices in California is part of knowing how much these penalties will be.
Agencies have to show accountability in the form of annual reports, detailing the amount of any late fees they paid and other specifics of the process. There is help available for state agencies in California, to make sure they can pay contractors and suppliers on time.
What About Pay-When-Paid Clauses for Subcontractors?
Subcontractors often ask, “Are pay-when-paid clauses enforceable in California?” The answer is no. These clauses, that state that the subcontractor will be paid only after the contractor receives their money, are not enforceable in California.
Some contractors still add these clauses to their contracts, and not every subcontractor knows or understands their rights. Unfortunately, that can lead to significant delays for subcontractors when it comes to getting paid.
Contractors have a responsibility to pay their subcontractors for completed jobs, whether or not the contractor has been paid by the end client. This includes contractors and suppliers who work with state agencies and fall under the Prompt Payment Act.
If you haven’t been paid in a timely manner by a state agency in California, reach out to Lanak & Hanna for information and support today. Additionally, subcontractors who aren’t receiving timely payments from contractors working with state agencies may also need legal representation and advice. Learning about your options, and the next steps to take is important. We can help.