The California Prompt Payment Act sets firm deadlines for public agencies to pay their contractors and imposes automatic penalties when those deadlines slip. State agencies generally have 45 days to pay a properly submitted invoice on a non-construction contract and 30 days on a construction contract. Local agencies have 30 days on construction contracts. Prime contractors, in turn, have seven days to pass progress payments down to subcontractors. Miss any of these and interest or penalties start running the next day, without the contractor having to ask.
Payment Deadlines by Contract Type
The deadline that applies to you depends on who owes the money and what kind of work is involved. The rules are scattered across several codes.
State Agency, Non-Construction Contracts
Government Code sections 927 through 927.13 give state agencies 45 calendar days to pay an undisputed, properly submitted invoice. The clock starts when the agency receives the invoice, not when it processes or approves it.1Justia. California Government Code Chapter 4.5 Prompt Payment of Claims – Section 927-927.13
State Agency, Construction Contracts
Public Contract Code section 10261.5 tightens the deadline for construction progress payments to 30 days from receipt of a proper request. If the contracting agency forwards the payment request to the State Controller’s Office on time but the Controller then takes more than 15 days to process it, the Controller’s Office is on the hook for the resulting interest rather than the contracting agency.2California Department of General Services. Interest on Construction Contract Claims – 8473.1
Local Agency Construction Contracts
Public Contract Code section 20104.50 gives cities, counties, school districts, and other local public entities 30 days to pay an undisputed progress payment request. If the payment request is defective, the agency has seven days to return it with a written explanation. Blow that seven-day window and every extra day gets subtracted from the 30-day payment window on the resubmitted invoice.3California Legislative Information. California Public Contract Code 20104.50
Prime Contractor to Subcontractor
Business and Professions Code section 7108.5 requires a prime contractor or higher-tier subcontractor to pay any lower-tier subcontractor within seven days of receiving a progress payment, unless the parties have agreed in writing to a different timeline. The payment must reflect that subcontractor’s share of the work covered by the progress payment. If part of the amount is genuinely in dispute, the prime can hold back up to 150 percent of the disputed portion, but the rest has to go out.4California Legislative Information. California Business and Professions Code 7108.5
Retention
Retention runs on its own clock. Civil Code section 8814 gives a direct contractor 10 days to pay each subcontractor’s share of a retention payment after receiving retention from the owner.5California Legislative Information. California Civil Code 8814 A contractor may only withhold retention from a subcontractor when the good-faith dispute is directly relevant to the retention funds themselves. The California Supreme Court has confirmed that a dispute about unrelated work does not justify holding a retention payment tied to different work.
Late Payment Penalty Rates
Once a deadline passes, penalties run automatically. The rate depends on the payer and the type of contract.
State Non-Construction Contracts
For non-construction contracts covered by the Government Code, the penalty rate depends on the contractor:
- Certified small businesses, nonprofits, and Medi-Cal service providers earn interest at 10 percent above the U.S. Prime Rate as of June 30 of the prior fiscal year.
- All other businesses earn 1 percent above the Pooled Money Investment Account daily rate as of June 30 of the prior fiscal year, capped at 15 percent.
Penalties accrue from the day after the deadline until the agency submits payment to the Controller or pays the contractor directly. The contractor is not required to bill for the penalty separately. The paying agency is supposed to calculate and remit it on its own.1Justia. California Government Code Chapter 4.5 Prompt Payment of Claims – Section 927-927.13
State and Local Construction Contracts
Interest on late construction payments at both the state and local level runs at the legal rate under Code of Civil Procedure section 685.010, which is 10 percent per year.2California Department of General Services. Interest on Construction Contract Claims – 8473.13California Legislative Information. California Public Contract Code 20104.50
Subcontractor Payments
A prime contractor who pays a subcontractor late owes 2 percent of the outstanding amount per month, every month, until the payment lands. That is a flat statutory rate, not tied to any external index, and it adds up quickly on a stalled invoice. The same violation is grounds for discipline against the prime’s license by the Contractors State License Board, and the prevailing party in any collection lawsuit recovers attorney’s fees.4California Legislative Information. California Business and Professions Code 7108.5
When the Clock Actually Starts
Every deadline in this area runs from receipt of a properly submitted invoice. An invoice missing required information can be returned, and the clock resets on the corrected version. This is where most payment delays actually originate.
For local construction contracts, section 20104.50 requires that the payment request be properly executed and that funds are available. The agency has to return a defective request within seven days with written reasons. Beyond seven days, the delay eats into the agency’s payment window on the corrected invoice.3California Legislative Information. California Public Contract Code 20104.50
For state contracts, what makes an invoice “proper” is set by the individual contract and the State Administrative Manual. At minimum, the invoice should identify the contract number, describe the goods delivered or services performed, list quantities and prices that match the contract terms, and include the contractor’s taxpayer identification and payment information.
Disputes That Stop the Clock
Not every late payment is stalling. An agency that genuinely disputes what is owed can pause payment, but only if it moves quickly and gives a specific reason.
For state agency contracts, the agency must notify the contractor of a dispute within 15 working days of receiving the invoice (or receiving the goods or services, whichever is later). The statute defines “reasonable cause” for a dispute to include a mismatch between the invoice and the contract terms, a discrepancy between the amounts billed and what was actually delivered, the need for additional supporting documentation, or an improperly completed invoice.1Justia. California Government Code Chapter 4.5 Prompt Payment of Claims – Section 927-927.13
For local construction contracts, the seven-day return rule under section 20104.50 does the same work: the agency has to identify the problem in writing within seven days or lose day-for-day on the resubmission.3California Legislative Information. California Public Contract Code 20104.50
When the Act Doesn’t Control
A few situations override or modify these deadlines, and it’s worth checking whether any of them apply to your contract before relying on the state rules.
Federally funded projects may fall under the federal Prompt Payment Act rather than California law. Federal agencies generally pay within 30 days of a proper invoice, with interest calculated using a Treasury Department rate on a 360-day year.6Bureau of the Fiscal Service, U.S. Department of the Treasury. Prompt Payment7eCFR. 5 CFR 1315.10 – Late Payment Interest Penalties
Contracts that condition payment on the availability of appropriated funds create no legal payment obligation until those funds are actually made available and the contractor receives written confirmation. And prime-to-sub deadlines under section 7108.5 can be modified by a written agreement between the parties, though not eliminated: the penalty for late payment still attaches to whatever deadline the parties set.
The Act also does not reach purely private contracts. Business-to-business disputes with no public agency involved fall under different law.
Getting Paid When the Deadline Passes
If informal follow-up doesn’t work, California gives contractors several ways to enforce payment, and they stack rather than compete.
For unpaid state agency invoices, the Department of General Services runs the Government Claims Program.8California Department of General Services. File a Claim Filing a claim there is typically a prerequisite to suing the state. Under the Government Claims Act, the agency has 45 days to approve, reject, or otherwise act on the claim. Silence at day 45 counts as rejection by operation of law, which opens the door to filing suit.
For subcontractor disputes, the remedies are cumulative. A subcontractor can collect the 2 percent monthly penalty under section 7108.5, file a complaint with the Contractors State License Board seeking discipline against the prime’s license, and bring a collection lawsuit in which the prevailing party recovers attorney’s fees.4California Legislative Information. California Business and Professions Code 7108.5 Pursuing one route does not close off the others.