Contract Requirements & Execution

The rule

Except for the down payment, a contractor may neither request nor accept payment exceeding the value of the work performed and materials delivered.

When it applies — and when it does not

• –The schedule of progress payments must state each payment in dollars and cents and name the work or materials that payment buys.
• –A change order becomes part of the contract only if it is in writing and signed before the changed work starts, and it must state the amount added to or subtracted from the contract and the effect on the progress payments or the completion date.
• –Materials count when they are delivered to the site, not when they are ordered.
• –A contractor who furnishes an approved bond or joint control may accept payment before completion; without one, front-loading is unlawful.

Worked contrast

This period's billing for a line item = line item's share of the contract price x percent of that line item complete.

Common mix-ups

• –The percent complete applies to that line item's own value, not to the whole contract price.
• –A change order moves the contract amount only once it is signed, and a deductive change comes off the same total the additive one went on.
• –The schedule of values is a billing breakdown of the price; it is not the construction schedule and not the critical path.

The rule

Once labor, services and materials on a home improvement job add up to more than $500, the deal has to be a written home improvement contract, headed "Home Improvement" in at least 10-point boldface type.

When it applies — and when it does not

• –The $500 is the aggregate price across one or more contracts for the same improvement, not the amount on a single invoice.
• –The signed, dated copy goes to the buyer before any work starts, and that delivery is what starts the buyer's cancellation clock.
• –A service and repair contract written under §7159.10 is outside §7159 as long as it complies with §7159.10 to §7159.14.

Worked contrast

Common mix-ups

• –The $500 written-contract line and the $1,000 minor-work line are two different tests: a licensed contractor's $700 job still needs a written contract.
• –§7159(b) says the aggregate price must exceed $500; the memorised figure is $500, but the statute's word is "exceeds".
• –The heading names the contract type; it is a different requirement from the notice of the right to cancel, which sits next to the signature.

The rule

On a home improvement contract the down payment may not exceed $1,000 or 10 percent of the contract amount, whichever is less, and the contract must print that sentence in at least 12-point boldface.

When it applies — and when it does not

• –The 10 percent is figured on the contract amount, which covers profit, labor and materials but excludes a separate finance charge.
• –The cap is a ceiling, not an entitlement: the actual down payment still has to appear in dollars and cents under the heading "Downpayment".
• –A contractor who furnishes a performance and payment bond, a bond equivalent, or a joint control approved by the registrar is exempt from the down-payment and progress-payment paragraphs and may accept payment before completion.

Worked contrast

Cap = the lesser of $1,000 and 10% x contract amount (finance charges excluded).

Common mix-ups

• –It is whichever is less, not whichever is greater: the bigger the job, the more certain it is that the flat $1,000 controls.
• –10 percent of the price is the cap only while 10 percent comes out under $1,000.
• –The down-payment cap is not the progress-payment rule; after the down payment the limit is the value of the work in place.

The rule

A home improvement contract must carry a Notice of Cancellation, in at least 12-point boldface and immediately next to the owner's signature space, telling the buyer they may cancel by midnight of the third business day after receiving a signed and dated copy of the contract.

When it applies — and when it does not

• –The clock starts when the buyer receives the signed and dated copy that includes the notice, not at the handshake and not at the start of work.
• –For a buyer who is a senior citizen, the words "three" and "third" in that same notice become "five" and "fifth".
• –The notice must be written in the language principally used in any oral sales presentation, and the owner signs and dates it to acknowledge receipt.
• –A home solicitation contract to repair or restore premises damaged by a declared disaster runs to midnight of the seventh business day after the buyer signs and dates it, and it is void altogether if it was signed within seven business days of the disaster and the buyer did not solicit it at the seller’s place of business.

Worked contrast

Common mix-ups

• –Three business days is neither 24 hours nor three calendar days.
• –The cancellation notice is the statutory notice the contract must carry; an arbitration clause and a lien release are separate, optional terms.
• –Five business days is the senior citizen rule; seven business days is the disaster repair rule, and the seven-day window does not depend on the buyer’s age.

The rule

The pricing method decides who absorbs a cost surprise: a fixed price or the portion above a guaranteed maximum is the contractor's problem, while cost-plus, time-and-materials and unit-price totals move with what the job actually consumes.

When it applies — and when it does not

• –Whatever method sits behind it, a home improvement contract must still state one contract amount in dollars and cents, covering profit, labor and materials and excluding finance charges.
• –Markup is figured on cost and margin is figured on the selling price, so the same job carries two different percentages.
• –On a unit-price job the rate is fixed but the total is not, because the quantities are measured in the field.

Worked contrast

Selling price with a markup on cost = cost x (1 + markup): $50,000 x 1.30 = $65,000. Margin, by contrast, is profit divided by the selling price.

Common mix-ups

• –A 30% markup on $50,000 of cost gives $65,000; treating the same 30% as a margin on the selling price gives a different, higher price.
• –A guaranteed maximum price caps what the owner pays but still reimburses cost below the cap, so it is not a lump sum.
• –Naming the pricing method does not change who carries the risk: whoever reimburses actual cost carries it.

The rule

An arbitration clause in a contract for work on residential property with four or fewer units is legal but must be titled "ARBITRATION OF DISPUTES", set in at least 10-point roman boldface, and separately initialed, while an indemnity for the other party's sole negligence is void whatever it looks like.

When it applies — and when it does not

• –In a printed contract the arbitration provision may instead appear in contrasting red print in at least 8-point roman boldface; in a typed contract it is set out in capital letters.
• –The statutory notice sits immediately before the initialing space and tells the owner the agreement gives up a court or jury trial and is voluntary.
• –An arbitration provision that does not comply with §7191 may not be enforced against anyone other than the licensee.
• –Civil Code §2782 also voids an indemnity for the promisee's willful misconduct, and in residential construction its limits cannot be waived by agreement.

Worked contrast

Common mix-ups

• –Arbitration clauses are legal in California; what the statute polices is the title, the type size and the separate initialing.
• –A clause that fails §7191 is unenforceable against the owner, but the statute leaves it enforceable against the licensee.
• –§2782 voids indemnity for the other party's sole negligence; shared fault is a separate question the section does not answer the same way.

The rule

On a private job the money moves on four separate clocks: owner to direct contractor within 30 days on a progress payment and 45 days on retention, direct contractor to subcontractor within 7 days on a progress payment and 10 days on retention.

When it applies — and when it does not

• –A good faith dispute lets the paying party hold back no more than 150 percent of the disputed amount, and only that amount.
• –Wrongful withholding carries a penalty of 2 percent per month on the amount withheld, and the prevailing party recovers attorney's fees and costs.
• –B&P §7108.5 covers private and public works alike, except where Public Contract Code §10262 applies.
• –A conditional waiver signed in exchange for a check takes effect only when the claimant actually receives payment from the bank the check is drawn on.

Worked contrast

Common mix-ups

• –7 days is the progress-payment pass-through under B&P §7108.5; 10 days is the retention pass-through under Civil Code §8814. Civil Code §8814 is not the 7-day rule.
• –B&P §7107 is the abandonment statute; the private-works retention pass-through lives in Civil Code §8814 and its penalty in §8818.
• –Signing a conditional waiver releases nothing until the check clears; an unconditional waiver does not carry that condition.

The rule

Abandonment without legal excuse is by itself a cause for discipline, and so is building without the permit: construction performed without a permit carries a rebuttable presumption that the violation was willful and deliberate.

When it applies — and when it does not

• –What separates abandonment from a lawful suspension is legal excuse, not how many days the crew is off the site.
• –The contract should say who obtains the local building permits and pays the fees; on a job built by a licensed contractor, the contractor is generally the one who pulls them.
• –An owner may sign the permit application as an owner-builder, and then takes on responsibility for all phases of the project.
• –The §7048 minor-work exemption stops where a building permit is required, whatever the price.

Worked contrast

Common mix-ups

• –Abandonment and a justified suspension look the same from the street; the difference is whether there was a legal excuse.
• –The building department issues and inspects; it does not apply for the permit on the project's behalf.
• –An owner-builder permit moves responsibility to the owner; it does not remove the licensing rules from whoever does the work.