Archive: January 19, 2008

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Court Examines Definition of Progress Payments in Connection with California’s Prompt Payment Penalty Statute

Court Examines Definition of Progress Payments in Connection with California’s Prompt Payment Penalty Statute

Murray’s Iron Works, Inc. v. Boyce, 158 Cal. App. 4th 1279 (2008)

In this case, the California Court of Appeal addressed whether the prompt payment penalty statute was properly applied against the owner and, in doing so, provided a definition for progress payments under the statute.

California requires that an owner pay its contractor any progress payment due as to which there is no good faith dispute within 30 days following receipt of a demand for payment.  If there is a good faith dispute between the owner and contactor, the owner may withhold no more than 150 percent of the disputed amount.  Any amount wrongfully withheld by the owner is subject to a penalty of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due.  The prevailing party is also entitled to attorney’s fees and costs.  (Cal. Civ. Code § 3260.1.)  Other statutes establish similar requirements for progress payments between contractors and subcontractors (Bus. & Prof. Code § 7108.5) and for payment of retention (Cal. Civ. Code § 3260).

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