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Construction Contracts   

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(a) (1) It is the intent of the Legislature in enacting this section to require all local governments to pay their contractors on time so that these contractors can meet their own obligations. In requiring prompt payment by all local governments, the Legislature hereby finds and declares that the prompt payment of outstanding receipts is not merely a municipal affair, but is, instead, a matter of statewide concern.

(2) It is the intent of the Legislature in enacting this article to fully occupy the field of public policy relating to the prompt payment of local governments' outstanding receipts. The Legislature finds and declares that all government officials, including those in local government, must set a standard of prompt payment that any business in the private sector that may contract for services should look towards for guidance.

(b) Any local agency that fails to make any progress payment within 30 days after receipt of an undisputed and properly submitted payment request from a contractor on a construction contract shall pay a penalty of 2 percent on the unpaid portion of the payment per 30-day period, in lieu of interest otherwise due. The prevailing party shall be entitled to costs and attorney's fees incurred in the collection of payment under this section.

(c) Upon receipt of a payment request, each local agency shall act in accordance with both of the following:

(1) Each payment request shall be reviewed by the local agency as soon as practicable after receipt for the purpose of determining that the payment request is a proper payment request.

(2) Any payment request determined not to be a proper payment request suitable for payment shall be returned to the contractor as soon as practicable, but not later than seven days after receipt. A request returned pursuant to this paragraph shall be accompanied by a document setting forth in writing the reasons why the payment request is not proper.

(d) The number of days available to a local agency to make a payment without incurring interest pursuant to this section shall be reduced by the number of days by which a local agency exceeds the seven-day return requirement set forth in paragraph (2) of subdivision (c).

(e) For purposes of this article:

(1) A "local agency" includes, but is not limited to, a city, including a charter city, a county, and a city and county, and is any public entity subject to this part.

(2) A "progress payment" includes all payments due contractors, except that portion of the final payment designated by the contract as retention earnings.

(3) A payment request shall be considered properly executed if funds are available for payment of the payment request and payment is not delayed due to an audit inquiry by the financial officer of the local agency.

(f) Each local agency shall require that this article, or a summary thereof, be set forth in the terms of any contract subject to this article.

(g) A local agency is not subject to the penalty imposed by subdivision (b) if the failure to pay is due to an unforeseeable event such as a natural disaster or major computer failure outside the control of the local agency, or if the local agency demonstrates that it has made a good faith effort to make the payment. An unforeseeable event or a demonstration of good faith effort shall be declared in writing within 30 days of receipt of a payment request. During the period when a payment owed remains unpaid under circumstances described in this subdivision, the agency is subject to interest at the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure.

(Added by Stats. 1992, Ch 799, Sec. 2.)