California Construction Contracts Guide & FAQs
A construction contract outlines each party’s obligations, rights, and remedies on a project. But although the language in specific contract clauses is typically negotiable, California has certain rules that govern what the agreement must include — and what is prohibited.
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Keep in mind that, while California’s rules for construction contract terms are written into state law, the courts determine how strictly those laws should be interpreted — and those interpretations can change.
On this page, you’ll find resources, legal information, and answers to frequently asked questions about California’s construction contract and payment terms requirements.
California construction contract provisions
While California generally allows construction parties to set the terms of their agreement, there are some laws that regulate specific types of contract provisions. Any contract clause that contradicts the law is invalid and unenforceable.
“No lien” clauses
California’s mechanics lien law specifically prohibits the use of “no-lien clauses,” including any contract term that attempts to “waive, affect, or impair any other claimant’s rights” to file a lien. Any clause that tries to reduce a claimant’s lien rights in the contract is void and unenforceable.
Contingent payment clauses
There are two types of contingent payment clauses: pay-if–paid and pay–when-paid.
California prohibits pay-if-paid clauses, which state that the hired party will not receive payment “unless and until” the hiring party is paid, these clauses are generally unenforceable on private and public projects.
Pay-when-paid clauses are allowed in California, as long as payment is provided within a “reasonable time” and the unpaid party isn’t barred from filing a claim.
Payment timing clauses
California’s prompt payment laws set specific deadlines for payments on both private and public construction projects. On private projects, parties may agree to different payment timing provisions. However, on public projects, payment to prime contractors must be made according to the prompt payment act, while all other payments may be modified by the subcontract terms.
Retainage clauses
California regulates retainage differently on private and public projects.
There is no cap on the amount of retainage that can be withheld on private residential or commercial projects. Therefore the amount that can be withheld will be governed by the terms of the contract.
On public projects, retainage is limited to no more than 5% of each progress payment, which may be reduced after 95% of the work is complete. The contract between the parties cannot be modified to withhold more unless the project is deemed “substantially complex” according to the public entity.
California construction contract requirements
California also has laws that establish contract requirements for specific types of projects — particularly those that involve a homeowner. Generally, all construction contracts and subcontracts in California must include the contractor’s license number issued by the CLSB (if required). In addition, to the license number, all prime contracts must include notice language regarding licensing requirements in 10pt bold font.
California home improvement contracts
California has a number of rules for home improvement agreements, including upfront deposits, payment terms, contract language, and consumer notices. For example, contracts must include specific paragraphs, and for certain text, the contract must be an exact font size and weight. The contractor may request a down payment, but that payment is limited to $1,000 or 10% of the contract price — whichever is less.
Other types of construction contract requirements
There are some additional requirements for specific types of contracts, such as service and repair contracts on residential projects under $750; such as certain language and payment terms required, and even actions the contractor is allowed to take. For example, the homeowner must have initiated contact with the contractor for a service and repair contract to be valid.
Construction Contracts FAQs in California
Construction contracts and payment terms are highly regulated in California. It can be confusing to figure out when payments must be made, how to make them, and how to best protect your company from expensive problems. Here are some frequently asked questions that come up with construction contracts and payment terms on California jobs.
California Construction Contracts FAQs
Can you waive lien rights by contract in California?
No, in California any contract provision that attempts to waive lien rights by contract prior to the commencement of work is invalid. This is explicitly prohibited under Cal. Civ. Code §8122, “An owner, direct contractor, or subcontractor may not, by contract or otherwise, waive, affect or impair any other claimant’s rights under this party, whether with or without notice, and any term that purports to do so is void and unenforceable.
• Learn more About Gulf ResourcesConstruction Contracts
Do I need a written contract to file a California mechanics lien?
No, although it’s always recommended to work under a written contract, one is not required in order to have the right to file a California mechanics lien.
How does California treat pay-if-paid and pay-when-paid clauses?
Pay-if-paid clauses
Pay-if-paid clauses have been declared against public policy in California. Thus, such provisions are void and unenforceable on both private projects and public construction projects.
“We conclude that pay if paid provisions like the one at issue here are contrary to the public policy of this state and therefore unenforceable because they affect an impermissible indirect waiver or forfeiture of the subcontractor’s constitutionally protected mechanic’s lien rights in the event of nonpayment by the owner. Because they are unenforceable, pay if paid provisions in construction subcontracts do not insulate either general contractors or their payment bond sureties from their contractual obligations to pay subcontractors for work performed.” (Wm. R. Clarke Corp. v. Safeco Ins. Co.)
“ the general contractor’s liability to its subcontractor for work performed on a public works project may not be contingent on the governmental entity’s payment to the general contractor…” (Capitol Steel Fabricators, Inc. v. Mega Construction Co.)
pay-when-paid clauses
Pay-when-paid clauses are enforceable in California, but will merely fix the usual time for payment to the subcontractor, with the implied understanding that the subcontractor, in any event, has an unconditional right to payment within a reasonable time.
Furthermore, a recent California Supreme Court decision held that a pay-when-paid clause is only enforceable if the provision sets a “reasonable time” for payment, any clauses that delay payments to some indefinite, unspecified time period may be declared unenforceable.
Are no-damages-for-delays clauses enforceable in California?
Private projects
On private construction projects, no-damages-for-delay clauses are enforceable as long as the clause is expressly and unambiguously stated (Frank T. Hickey, Inc. v. L.A. J.C. Council). California contractors should keep an eye out for any clauses that limit the number of damages recoverable for construction delays.
Public projects
On California public works projects, no-damages-for-delay clauses are generally unenforceable under Cal. Pub. Cont. Code §7102, but with a few exceptions. Such clauses in public construction contracts are unenforceable where the delay is “unreasonable under the circumstances involved, and not within the contemplation of the parties.”
Can you contract around California’s prompt payment terms?
Private projects
California regulates the timing of payments on private construction projects under their prompt payment laws. Payments to prime contractors must be made within 30 days of receipt of the payment request, and all other payments must be made within 7 days after the higher-tiered party receives payment. However, these deadlines may be modified by the contract between the parties..
Public projects
As for public projects in California, the timing of payments from the public entity (30 days) cannot be modified by contract. But all other payments down the contracting chain can be modified, as the statutes provide that payment should be made within 7 days of receipt of payment unless otherwise agreed.
Can you contract around California’s retainage requirements?
Private projects
California does not regulate the amount of retainage that can be withheld on private projects. Therefore the amount withheld will be governed by the terms of the contract.
Public projects
The amount of retainage that can be withheld on public projects in California is generally capped at no more than 5% of each progress payment. Amount withheld from the prime contractor acts as the maximum amount that may be withheld from any subs or suppliers. The amount of retainage cannot exceed these limits, except if the public entity deems the project “substantially complex.”
Does California have any specific requirements for construction contracts?
All California construction contracts
Every construction contract and subcontract in California must include the contractor’s license number issued by the CSLB (if required).
• The Guide to California Contractor Licensing
Furthermore, every prime contract (those between the general contractor and the property owner), except for home improvement contracts, must also include certain notice language in at least 10pt font found under Cal. Bus. & Prof. Code §7030(a).
Specific types of construction contracts
Home improvement contracts in California over $500 have a number of different requirements under Cal. Bus. & Prof. Code §7159. This includes such things as:
- • Contract must be in writing;
- • Printed in at least 10pt font with bold headers;
- • Date of execution of the contract;
- • Contractor’s name, address, & license;
- • Right to cancel provisions;
- • Change order forms;
- • Various required notices
Other types of contracts such as “service and repair” contracts on residential properties under $750.
How long do I have to bring a breach of contract claim for nonpayment in California?
The statute of limitations for a breach of contract claim in California varies depending on whether the contract is written or oral.
Written contracts
Under Cal. Civ. Proc. §337, claims for breach of contract must be brought within 4 years from the date of the breach
Oral contracts
For oral or implied contracts, a breach of contract claim must be brought within 2 years from the date of breach under Cal. Civ. Proc. §339.
