This article governs a retention payment withheld by an owner from a direct contractor or by a direct contractor from a subcontractor.
Article 2Retention Payment
Section § 8810
This section deals with the rules around money that a property owner or contractor holds back from what they owe to another contractor or subcontractor as a form of financial security.
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Section § 8812
If a property owner holds back some money from a contractor until the job is done, they have to pay this amount to the contractor within 45 days after the project is completed. If part of the project will belong to a public agency later, the owner can wait to pay that portion until the agency approves it. If there's a genuine argument about the money owed, the owner can keep back up to 150% of the amount being argued over until it's resolved.
(a)CA Civil Law Code § 8812(a) If an owner withholds a retention from a direct contractor, the owner shall, within 45 days after completion of the work of improvement, pay the retention to the contractor.
(b)CA Civil Law Code § 8812(b) If part of a work of improvement ultimately will become the property of a public entity, the owner may condition payment of a retention allocable to that part
on acceptance of the part by the public entity.
(c)CA Civil Law Code § 8812(c) If there is a good faith dispute between the owner and direct contractor as to a retention payment due, the owner may withhold from final payment an amount not in excess of 150 percent of the disputed amount.
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Section § 8814
This law states that when a main contractor, known as a direct contractor, receives a retention payment (a hold-back portion of funds from a construction project), they must pay the subcontractors their share within 10 days. If the retention is meant for a specific subcontractor, it should be paid directly to them, following the agreement terms. The direct contractor can hold back an amount up to 150% of the value of any disputed work with a subcontractor, as long as the dispute is genuine.
(a)CA Civil Law Code § 8814(a) If a direct contractor has withheld a retention from one or more subcontractors, the direct contractor shall, within 10 days after receiving all or part of a retention payment, pay to each subcontractor from whom retention has been withheld that subcontractor’s share of the payment.
(b)CA Civil Law Code § 8814(b) If a retention received by the direct contractor
is specifically designated for a particular subcontractor, the direct contractor shall pay the retention payment to the designated subcontractor, if consistent with the terms of the subcontract.
(c)CA Civil Law Code § 8814(c) If a good faith dispute exists between the direct contractor and a subcontractor, the direct contractor may withhold from the retention to the subcontractor an amount not in excess of 150 percent of the estimated value of the disputed amount.
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Section § 8816
This law says that if a contractor or subcontractor finishes work that was in dispute, they can notify the owner or head contractor. Then, within 10 days, the owner or contractor must tell them if they accept or reject the work. If they accept, they must pay for the retained portion related to that work within another 10 days.
(a)CA Civil Law Code § 8816(a) If the direct contractor gives the owner, or a subcontractor gives the direct contractor, notice that work in dispute has been completed in accordance with the contract, the owner or direct contractor shall within 10 days give notice advising the notifying party of the acceptance or rejection of the disputed work. Both notices shall comply with the requirements of Chapter 2 (commencing with Section
8100) of Title 1.
(b)CA Civil Law Code § 8816(b) Within 10 days after acceptance of disputed work, the owner or direct contractor shall pay the portion of the retention relating to the disputed work.
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Section § 8818
If someone who owes you money for construction work doesn't pay on time, they have to pay you a penalty of 2% per month on the amount they owe. If you take this to court and win, they'll also have to cover your court costs and lawyer fees.
If an owner or direct contractor does not make a retention payment within the time required by this article:
(a)CA Civil Law Code § 8818(a) The owner or direct contractor is liable to the person to which payment is owed for a penalty of 2 percent per month on the amount wrongfully withheld, in place of any interest otherwise due.
(b)CA Civil Law Code § 8818(b) In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and reasonable attorney’s fees.
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Section § 8820
In California, you cannot create a contract that overrides or skips the rules outlined in this section because it's considered harmful to public interest.
It is against public policy to waive the provisions of this article by contract.
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Section § 8822
This rule doesn't apply to money that a lender holds back as part of a construction loan agreement.
This article does not apply to a retention payment withheld by a lender pursuant to a construction loan agreement.
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