Articles > Construction law in California

When Service of a “Payment Bond Notice” is Required Before Bringing a Lawsuit on a Payment Bond Claim

by William L. Porter, Attorney at Law

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 3096, 3235-3242).

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 20-Day 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,” found on our website under "Forms." If you failed to originally serve the Preliminary 20-Day 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 20-Day Notice, then the “Bond Notice” must be served within only 75 days from the date of completion. (See Civil Code sections 3242, 3227.)

A better course of action is to avoid missing these deadlines by sending the Payment Bond Notice as early as possible. The best course of action would have been to have properly and timely served your Preliminary 20-Day 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 20-Day 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. Again, certified mail, return receipt requested is highly recommended because it preserves an objective written record of service, and is less expensive than registered mail. Always make a copy of whatever you send and always save your “receipt for certified mail” and your “return receipt” after the postal service returns it. (See Civil Code sections 3227, 3235-3242).

Payment Bond Lawsuit Deadline

If the Payment Bond 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 § 3240.) If the Payment Bond is not recorded, a lawsuit against the bond surety must be filed within four (4) years. (See Civil Code section 3239; Code of Civil Procedure section 337).

Since all claims (Mechanics’ Liens, Stop 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 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 3172-3176.5).

Legislative Efforts

It should be noted that there has been multiple efforts in recent years to approve legislation which would do away with or severely curtail the beneficial impact of impact of Civil Code Sections 3242 and 3227 which subcontractors and suppliers currently enjoy. All efforts have failed. Stay tuned.

William L. Porter is a principal in Porter Law Group, Inc. in Sacramento, California.
He can be reached  at (916) 381-7868.