The payment bond is a valuable source for payment to subcontractors and suppliers who have not been paid for work performed on California construction projects. Although a payment bond is typically associated with public works projects, payment bonds can also be used on private works projects. If there is a payment bond on the project there are important deadlines which must be followed. If the original contractor was required to post a payment bond for the project, then follow the deadlines described below. (See California Civil Code sections 8600 – 8614 for private works and §§ 9550-9566 for public works).
Deadlines for Service of Payment Bond Notice
If the original contractor was required to post a Payment Bond for the project, and you did NOT properly serve a California Preliminary Notice, you are required to serve a Bond Notice before you may make a claim on the Payment Bond. Use the form entitled “Bond Notice,” which is available at porterlaw.com/forms.htm. If you failed to originally serve the Preliminary Notice, then a “Bond Notice” must be served within only 15 days from the day the “Notice of Completion” is recorded. If no “Notice of Completion” is recorded, and you originally failed to serve the Preliminary Notice, then the “Bond Notice” must be served within only 75 days from the date of completion. (See Civil Code section 8612 for private works and § 9560 for public works). Note that the ability to make a payment bond claim by those who failed to serve a preliminary notice is further limited by 8612(c) and (d) for private works and 9560(c) and (d) for public works.
A better course of action is to avoid missing these deadlines by sending the Payment Bond Notice as early as possible. The best possible course of action would have been to have properly and timely served your Preliminary Notice in the first place, so you could avoid having to deal with the Payment Bond Notice entirely.
If you DID properly serve a Preliminary Notice (as you should have), you need not serve a Payment Bond Notice, and may now proceed under the rules for lawsuit deadlines, discussed below under “Payment Bond Lawsuit Deadline”.
Procedure to Serve a Payment Bond Notice
Serve a Payment Bond Notice on both the bond principal (usually the original contractor) and on the payment bond surety either by personal, hand delivery or by registered mail or certified mail, return receipt requested or by express mail or overnight delivery by an express service carrier. Note that hand delivery of the notice should be avoided because the other methods of delivery preserve an objective written record of service. Always make a copy of whatever you send and always save your “receipt for certified mail” and your “return receipt” or other proof of delivery after the postal service returns it.
Payment Bond Lawsuit Deadline
If a Payment Bond on a private works project is recorded, any lawsuit against the bond surety must be filed within six months after the completion of the work of improvement. (See Civ. Code § 8610). If the Payment Bond on a private works project is not recorded, a lawsuit against the bond surety must be filed within four (4) years. (See Civil Code section 8609; Code of Civil Procedure section 337). For a public works project, a claimant may commence an action on the payment bond at any time after the claimant ceases to provide work on the project, but not later than six (6) months after the period in which a Stop Payment Notice must be given under Civil Code section 9356. (see Civil Code § 9558).
Since all claims (Mechanics Liens, Stop Payment Notice, Payment Bond, Breach of Contract, et cetera) must be brought in the same lawsuit, it is necessary to bring the suit under the shortest applicable time frame in order to avoid missing a deadline. The shortest time frame is generally 90 days after a Mechanics Lien, Stop Payment Notice or Bond claim is filed. Please be sure to give your attorney several weeks lead time to gather the necessary information and to draft and file a lawsuit. (See Civil Code sections 8550 et seq. for private works and Civil Code § 9500 et seq. for public works).
Article written by William L. Porter, Esq. and revised in 2014. Mr. Porter is a principal in The Porter Law Group, Inc. in Sacramento, California. He can be reached by phone at (916) 381-7868.