Payment bond claims and missing certified payroll in California

What a payment bond is, in one paragraph

Civil Code section 9550 requires the direct contractor on a public works contract "in excess of twenty five thousand dollars ($25,000)" to post a payment bond before starting work. Under Civil Code section 9554, the bond runs "not less than 100 percent of the total amount payable" under the contract, written by an admitted surety insurer. It is a private promise from that surety to pay claimants if the direct contractor does not, and it exists whether or not any paperwork dispute ever comes up.

Who can actually make a claim

Civil Code section 9100 defines a claimant as a person who provides work authorized by the direct contractor, a subcontractor, an architect, a project manager, or another person in charge of all or part of the contract, plus laborers directly. The same section is explicit about who cannot claim: "a direct contractor may not give a stop payment notice or assert a claim against a payment bond." The bond protects everyone below the direct contractor on the job, not the direct contractor itself.

Two different pots of money

The confusion comes from mixing up two separate obligations. The first is the money the awarding body owes the direct contractor. If your certified payroll is delinquent or inadequate, the awarding body's Labor Compliance Program can withhold that money under 8 CCR 16435 and Labor Code section 1771.5, subdivision (b)(5), and it does not require the Labor Commissioner's prior approval. See certified payroll noncompliance letters and, for the heavier version tied to an actual wage finding, Notice of Withholding of Contract Payments.

The second pot is the payment bond, and it runs on its own track. Civil Code section 9564, subdivision (a), states that "a claimant may maintain an action to enforce the liability of a surety on a payment bond whether or not the claimant has given the public entity a stop payment notice." A bond claim runs against the surety and the direct contractor as bond principal, not against whatever the awarding body is holding back for records reasons. A gap in your certified payroll does not, by itself, give the surety a defense to a valid claim for work you actually performed.

Where a certified payroll gap does bite

Missing certified payroll is rarely free even outside the withholding letters above. Two practical ways it costs you:

• Retention held as a bona fide dispute. Public Contract Code section 7107 requires retention released "within 60 days after the date of completion of the work of improvement," with a 2 percent per month charge on any amount wrongfully withheld. The same section lets a direct contractor withhold a subcontractor's retention over a genuine dispute, up to "150 percent of the estimated value of the disputed amount." If your subcontract makes timely certified payroll a condition of payment, an unresolved gap can be exactly the dispute that supports that holdback until it is resolved.
• Your own subcontract terms. Many subcontracts already require certified payroll as a flow-down condition; see subcontractor flow-down clauses and certified payroll. A general contractor also has its own reason to check your payroll before it pays you, covered in is a general contractor liable for a sub's wage violation.

Neither defeats your right to sue the bond eventually. Both can make the direct contractor's own money slower to reach you while the gap is open.

Notice you have to give, and the deadline to sue

A bond claim is not automatic once you are unpaid. Civil Code section 9300, subdivision (a), requires a claimant to give preliminary notice to the public entity and the direct contractor before asserting a bond claim. Subdivision (b) exempts two groups: "a laborer," and "a claimant that has a direct contractual relationship with a direct contractor." Most first tier subcontractors fall into that second exemption; it is second tier subs and suppliers who most need to confirm preliminary notice went out.

If preliminary notice was required and was not given, Civil Code section 9560, subdivision (b), offers one fallback: written notice directly to the surety and the bond principal "within 15 days after recordation of a notice of completion." That is a narrow window, not a general grace period.

The deadline to sue on the bond runs off a different section. Civil Code section 9356 sets the window for a stop payment notice at 30 days after a notice of completion, acceptance, or cessation is recorded, or 90 days after cessation or completion if none was recorded. Civil Code section 9558 then gives you until "six months after the period in which a stop payment notice may be given under Section 9356" to sue on the bond, roughly seven months from recordation, or nine months from completion if none was recorded. Under section 9564, subdivision (c), whoever wins that suit recovers a reasonable attorney's fee.

What to do if you are unpaid and your own payroll has gaps

1. Get current on certified payroll now, regardless of who is at fault. It removes the easiest excuse for a holdback and gives you the dated records proving how many workers you had on site and when. See catching up on certified payroll.
2. Confirm your notice status. If you contracted directly with the direct contractor, you are likely exempt from preliminary notice. If not, confirm it went out, or use the 15 day surety notice window under section 9560 if a notice of completion has just recorded.
3. Track the six month deadline from day one, not from whenever the dispute starts feeling serious.
4. Bring in a construction attorney once real money is on the table. This page explains the mechanism; filing suit against a surety is a job for counsel.

Where WellStanding fits

We do not file bond claims or represent you against a general contractor; that is a construction attorney's job once real dollars are involved. We turn the payroll export you already run into a validated WH-347 and a DIR eCPR filing every week. A person reviews every filing. Pricing is on the home page, and your first filing is free.

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