Law Offices of Robert Nellessen

P.O. Box 409 • Santa Rosa • CA 95402
Phone (707)578-1200
Fax (707)578-5100

Representing Contractors, Engineers, Architects, and Homeowners since 1981

More Questions/Answers for Homeowners

Q. I just received a Preliminary Notice. What should I do?

A. Receipt of a Preliminary (20 day) Notice is not a cause for concern. Rather, it is so important you receive these Notices, that the California Contractors License Law requires material suppliers, (lumber, fixtures, etc.) and subcontractors (plumbers, roofers, etc.) to give these Notices to you. You are being warned that you should receive appropriate Lien Releases from these people, in exchange for progress payments to the General Contractor. Alternatively, you can require the General Contractor to be bonded, or you can, sometimes, write two party checks. Material suppliers and subcontractors are to give you this Notice within 20 days of their supplying material/labor. If they wait over 20 days, only the value of materials/labor supplied within 20 days of the Notice can be the subject of a Lien.

Q. What types of insurance should I require the Contractor to carry and how should I verify coverage?

A. First, by law, every Contractor who has an employee must carry Workers' Compensation Insurance. The Contractor should provide you with a "Certificate of Insurance". Call the listed insurance company and ask if the policy is in effect. Most contractors have Workers' Compensation Insurance with the "State Fund". The Fund assigns representatives to each Contractor and these representatives can confirm coverage. For projects of longer duration the insurance carrier should, in writing, confirm the dates of coverage and promise to notify you if coverage is canceled. Second, on longer projects the Contractor should carry Comprehensive General Liability(CGL)insurance to protect against injury to neighbors, children, etc. Again Certificates of Insurance should be provided to you.

Q. Is the Contractor License Bond adequate "insurance"?

A. The Contractors License Bond is the legal minimum the Contractors License Board requires. It is usually only $7,500 which can be "exhausted" any time by materialmen, subcontractors and/or owner's claims. It provides little, if any, protection to a homeowner! If time of completion is relevant, then you should require a Performance Bond (and have a liquidated damage section in your contract).

Q. Why didn't I get a Preliminary Notice from the original contractors?

A. Original Contractors: Those who signed a specific contract with you, do not need to file a Preliminary Notice. This is because you know who they are and you have an obligation to pay them directly, or they can file a Mechanic's Lien.

Retention/Final Payment

Q. Why does the contract have a retention, commonly referred to as "Final Payment?" What are my rights if I think the work is wrong or incomplete? When should the final payment be made to the General Contractor?

A. The contract should have a "Final Payment" provision of at least 10% of the total contract price. Under no circumstances should the final payment be paid until 45 days after the Notice of Completion has been filed. Because subcontractors and material suppliers have 30 days after the Notice of Completion to file a Lien, you want to be sure that there are no unpaid claimants. EVEN IF YOU PAY THE GENERAL CONTRACTOR IN FULL, those people who gave you a 20 day Pre-Lien Notice can still place a LIEN on your property if they have not been paid by the General Contractor.

On the 45th day after completion the Owner should be prepared to pay the final retention. If you believe the Contractor failed in a serious respect to follow the plans or your contract, or to pay lien claimants, you can retain up to 150% of the value of the dispute. However, if you are wrong you will be subject to a 2% per month interest penalty and attorney's fees (Civil sect. 3260).