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California Public Works Stop Notices: A Primer

California Public Works Stop Notices: A Primer

By
William C. Last, Jr.

When someone provides labor, services, equipment or materials to a California public works construction project and is not fully paid, he can file suit against the person who failed to pay him. However, even if he were to win such a suit, his ability to collect may be limited by the other party's bankruptcy or lack of assets, or even the disappearance of the other party.

In order to help alleviate these problems, California Law provides two procedures whereby one who provides services to a constructing project can obtain a more secure position. A properly served and perfected Stop Notice gives the claimant a lien against undisbursed construction funds in the possession of either the public owner. The second alternative is a claim on the payment bond that the public entity requires the general contractor to procure. The two remedies are cumulative remedies which can be simultaneously pursued along with a suit for breach of contract on the underlying debt. This article will concentrate on the public works stop notice remedy.

1. Who is eligible to make a public works stop notice claim ?

Only certain parties are able to take advantage of the lien laws. In order to qualify, the prospective claimant must, generally, (1) perform services, provide labor or provide materials to the project; (2) the services, labor or materials which were supplied must be used or consumed in the project; and (3) the owner or his representative (e.g., general contractor) must authorize the services or materials.

2. What are the basic steps for pursuing a public works stop notice claim ?

The Stop Notice procedures involve three basic steps:
First: If you are not the general contractor, serving a preliminary 20-day notice;
Second: Serving the Stop Notice; and
Third: Filing a lawsuit to enforce the Stop Notice.
Each of these steps is discussed below.

3. When is service of preliminary notice required and what is in the notice ?

The Preliminary Lien Notice procedure on a California public works project is similar, but not identical, to that on a private project. Some of these differences are noted below:

First, a Stop Notice claimant (other than a laborer for wages or an express trust fund) who had no contractual relationship with the prime contractor, must give the Preliminary Lien Notice. The Preliminary Lien Notice must be served within twenty (20) days of the first time that work, equipment or materials were furnished to the project.

Second, the contents of the Preliminary Notice varies slightly between a public and a private work. On a public work, the Preliminary Notice must contain a general description of labor, service, equipment or materials furnished or to be furnished; the name of the party to whom the labor, service, equipment or materials were furnished; and the name of the furnishing party.

Third, the notice must be served by first class mail, registered mail, or certified mail on the contractor or its subcontractor, either at his residence or anywhere he maintains an office, or by personal service. It must also be served on the department for whom the work is being performed. In the case of public works constructed by the Department of Public Works or the Department of General Services, the department is to be served through the office of the disbursing officer of the department constructing the work or by personal service on the officer.

In the event a preliminary notice is not a timely served, it is possible to serve a claim on a public works payment bond. That escape valve is beyond the scope of this article. Nonetheless, stop notice claimants should still make it a practice to give a timely twenty day preliminary notice.

4. What are the time deadlines on filing a public works stop notice ?

The Stop Notice on a state or local public work must be served within thirty (30) days after the recording of a Notice of Completion, Notice of Acceptance, or Notice of Cessation. (Civil Code 3184). Where no Notice of Completion, Acceptance or Cessation has been recorded, the Stop Notice must be served within ninety (90) days after actual completion or cessation of work. (Civil Code 3184).

5. What form should the stop notice take and upon who must it be served ?

The Stop Notice must be signed and verified by the claimant or his agent, and contain all of the following information:

  1. The type of labor, services, equipment or materials furnished or agreed to be furnished;
  2. The name of the person to or for whom the labor, services, equipment or materials were furnished;
  3. The value of the labor, services, equipment or materials already furnished, and the total value of the labor, services, equipment or materials agreed to be furnished;
  4. The name and address of the claimant;
  5. It is a good idea to include a statement of the claimant's demand and the jobsite location. The Stop Notice must be signed and verified by the claimant.
  6. The Stop Notice should include a statement demanding that sufficient funds be withheld to satisfy the claim with interest.

When serving a Stop Notice on a state work, it must be served on the director of the department which awarded the contract. (Civil Code 3103). On all other public works projects, the Stop Notice should be served on the office of the controller, auditor, or other public officer whose duty it is to make payments under the contract, or on the commissioners, trustees, officers, manager, board of supervisors, board of trustees, or other body which awarded the contract. (Civil Code 3103).

The Stop Notice may be served personally or by registered or certified mail.

6. Must the stop notice be accompanied by a bond ?

In contrast to a Stop Notice to a lender on a private work, a public works Stop Notice need not be bonded in order to be effective.

7. How is the stop notice "perfected" ?

When a properly executed Stop Notice is served on the proper public official, that official must withhold from the prime contractor construction funds in an amount sufficient to satisfy the amount claimed in the Stop Notice. (Civil Code 3186). He is not required to release the money to the claimant, however, until the claimant has foreclosed on the Stop Notice in a court action.

A suit on a Stop Notice on a public work must be filed within the following time period: Not less than ten (10) days after the filing of the Stop Notice; and not more than ninety (90) days after the expiration of the period within which Stop Notices may be filed. (Civil Code 3210).

If the money withheld pursuant to all the properly filed Stop Notices is insufficient to pay all the valid claims stated in the Stop Notices, the money will be distributed pro rata among all the claimants. There is no priority established between the claimants based on when their Stop Notices were filed. Payment is made based on the ratio that the respective claims bear to the total amount of all valid Stop Notice claims. (Civil Code 3190).

8. How can a public works general contractor obtain the release of the funds being held ?

When the prime contractor disputes the validity of any or all of the Stop Notice claims, there are two procedures which it may use to attempt to have the withheld funds released in an expedited manner.

  1. Bond: The public entity may, in its discretion, allow the contractor to file a proper bond to obtain release of the withheld amounts. The bond must be issued by a corporate surety, and be in an amount equal to 125 percent (125%) of the claim stated in the Stop Notice. The bond must provide that if the claimant eventually recovers, he may also recover the costs of bringing the action. (Civil Code 3196).
  2. Affidavit: If the prime contractor claims that the Stop Notice is invalid due to one of the four following reasons, he may attempt to obtain release of the money by a different method. The four grounds are:

    (a) That the claim upon which the Stop Notice is based is not one which is a proper ground for a Stop Notice on a public work;

    (b) That the person claiming the Stop Notice is not a person who is entitled to a Stop Notice on a public work;

    (c) That the amount of the claim in the Stop Notice is excessive; or

    (d) That the claim as set out in the Stop Notice has no proper basis in law. (Civil Code 3197).

This affidavit, and one copy, is served on the public entity. (Civil Code 3198).

The public entity then served a copy of the affidavit and demand for release and a written notice on the Stop Notice claimant, stating that it will release the money as demanded unless the claimant files a counter affidavit within a designated period of time (10-20 days hence). (Civil Code 3199). If the claimant desires to contest the contractor's affidavit, he must, within the time specified in the public entity's notice, serve upon the public entity a counter-affidavit and serve a copy on the prime contractor. This counter-affidavit must contain, in detail, the facts which support the claim in his Stop Notice, as well as facts which rebut the allegations of the prime contractor's affidavit. The claimant must also include proof that he has served a copy of the counter-affidavit upon the prime contractor. If the claimant fails to file the counter-affidavit and proof of service within the proper time, the public entity may immediately release the funds to the contractor as demanded in the original affidavit. (Civil Code 3200).

If a proper counter-affidavit is filed within the proper amount of time, either the prime contractor or the claimant may file an action in Superior Court for an expedited hearing on the validity of the Stop Notice.

If the prime contractor does not wish to use the affidavit process to obtain an expedited hearing, the Stop Notice claimant must file a lawsuit within the prescribed period to enforce its Stop Notice.

Conclusion

The stop notice remedy offers a public works subcontractor or supplier a valuable collection tool. In addition, a public works contractor should also consider making a claim on payment bond. However, to be effective the subcontractor or supplier must meet the statutory prerequisites for enforcing the stop notice. This article was intended to give an overview of the public work stop notice process. If you have specific questions the author strongly suggests that you contact an attorney who is knowledgeable about the requirements and application of these remedies.

This article, ©2001, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years.. In addition to belonging to a number of construction trade associations, Mr. Last holds a California "A" and "B" license. He can be contacted at 415-764-1990 or 650-425-7679. His e-mail address is wclast@covad.net. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.

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