California Passes First State Payment Transparency Law

California is the first state to have a payment transparency law in place for state agencies. The state now requires agencies to post to their websites information about a project that will help subcontractors and suppliers know their payment rights. Gov. Jerry Brown signed AB1223 into law earlier this month to hold state agencies and prime contractors more accountable.

“Subcontractors and suppliers on certain state projects and all local projects will now have the information needed to prove their right to be paid under the prompt payment laws, which is triggered when the general contractor has been paid,” said Daniel McLennon, chair of the legislative committee for American Subcontractors Association (ASA) of California.

The new law requires a state agency with an internet website to post payment information on its site within 10 days of making a construction contract payment. This does not apply to contracts valued below $25,000 and to certain progress payments. According to the law, data that are to be published include:

  • The project for which the payment was made.
  • The name of the construction contractor or company paid.
  • The date the payment was made or the date the state agency transmitted instructions to the controller or other payer to make the payment.
  • The payment application number or other identifying information.
  • The amount of the payment.

With that said, there are currently no consequences if the agency posts after 10 days or not at all, according to McLennon. “Complaints to government officials could be effective to leverage state and local agencies to comply. Otherwise, legal action seeking injunction would be required,” he explained. Prior to the new law, “to obtain information about payments to general contractors, subcontractors would have to demand production of information through the Freedom of Information Act, which is time consuming, slow and expensive,” McLennon added.

The Department of General Services handles most of the state construction projects except for a handful of departments including the Department of Water Resources and the Department of Transportation. “Thus, the new law does not apply to much construction by the state itself, but it does apply to all local agencies,” McLennon said.

Although California is the first state to pass such a law, there are other areas that have similar legislation. “Several cities, including the District of Columbia and San Antonio, already have payment transparency laws in place,” said ASA Chief Advocacy Officer E. Colette Nelson. Virginia and Maryland have also considered payment transparency laws. “I expect other ASA chapters to pursue legislation in their states,” she added. At the federal level, H.R.2350, Small Business Know-Before-You-Bid Construction Transparency Act of 2017, was introduced earlier this year and has been supported by NACM. This act could help small contractors, subcontractors and suppliers with change order payments, payment timelines and payment bond transparency.