California’s Payment Bond Requirement for Owners on Large Private Projects
On large private projects in California, there is a unique remedy that requires owners to provide a payment bond or other security. In certain circumstances, where the total contract is over $1,000,000, and in some situations over $5,000,000, the owner must provide the direct (general) contractor with security for the owner’s payment obligation under the prime contract.
The security requirement is only for a fixed percentage of the total contract price. Additionally, there are a few exceptions to this requirement. It does not apply to public projects, a single-family residence, or certain owners that are publicly traded companies or large private companies.
Although the direct contractor is the only party entitled to enforce the rights under this statutory requirement, the remedy may be worthwhile to free the flow of funds in the event of nonpayment by the owner. The security requirement is in addition to all other construction payment remedies, such as a mechanic’s lien, stop payment notices, and prompt payment rights of a subcontractor.