Getting Paid on Public Works: Prevailing Wage, Registration, and Bond Remedies

Labor Code section 1720 defines public works for prevailing wage purposes, and the definition turns substantially on public funding rather than on who owns the property. That is the first place contractors are surprised: a privately owned project can fall within the definition if it is paid for in whole or in part out of public funds.

Labor Code section 1771 states the core obligation and its threshold. Except for public works projects of one thousand dollars or less, not less than the general prevailing rate of per diem wages for work of a similar character in the locality where the work is performed must be paid to all workers employed on public works. Section 1771 applies to work performed under contract and does not apply to work a public agency carries out with its own forces, and it does apply to contracts let for maintenance work.

Labor Code section 1774 obligates the contractor and subcontractors to pay not less than the specified rates. The obligation is not delegable in the sense that matters here — as section 1775 makes explicit, a general contractor carries duties with respect to its subcontractors’ compliance.

Labor Code section 1776 requires each contractor and subcontractor to keep accurate payroll records showing, for each worker on the public work, the name, address, social security number, work classification, straight time and overtime hours worked each day and each week, and the actual per diem wages paid. Each payroll record must contain or be verified by a written declaration, made under penalty of perjury, that the information is true and correct and that the employer has complied with specified wage and hours requirements.

Section 1771.4 requires certified payroll records to be furnished to the Labor Commissioner, generally through the Department’s electronic system, subject to a small project exemption. The penalty-of-perjury declaration is the detail to sit with: certified payroll is a sworn statement, and errors in it are not merely administrative.

Labor Code section 1775 sets penalties for paying less than the prevailing rate, and the structure is per worker, per calendar day. Two escalation floors appear in the statute. The penalty may not be less than eighty dollars for each calendar day, or portion of a day, for each worker paid less than the prevailing rate, where the contractor or subcontractor has been assessed penalties within the previous three years for failing to meet prevailing wage obligations on a separate contract — unless those penalties were later withdrawn or overturned. And the penalty may not be less than one hundred twenty dollars per day per worker where the Labor Commissioner determines the violation was willful, as willfulness is defined in Labor Code section 1777.1.

Section 1775 also provides that where amounts are collected, an outstanding wage claim against the contractor or subcontractor is satisfied before the collected amount is applied to the penalty. Workers are paid first.

Arithmetic matters here. A modest misclassification affecting a handful of workers across several months is not a modest number once it is multiplied by workers and by calendar days.

Section 1775 provides that the contractor shall monitor the payment of the prevailing rate by the subcontractor to its employees, by periodic review of the subcontractor’s certified payroll records. This is an affirmative duty, not a passive one, and it is the provision that makes a general contractor’s exposure for a subcontractor’s underpayment a live question rather than an academic one. Periodic review means a documented practice.

This is where public work diverges most sharply from private work. A mechanics lien generally does not attach to public property, so the lien remedy that anchors private collection is unavailable. Two remedies take its place.

The payment bond is usually the primary route. Civil Code section 9550 requires a direct contractor awarded a public works contract involving an expenditure in excess of twenty-five thousand dollars to give a payment bond before commencement of work, and section 9554 requires that bond to be in an amount not less than one hundred percent of the total amount payable under the contract, executed by an admitted surety insurer. Section 9558 sets the deadline to sue on it: any time after the claimant ceases to provide work, but not later than six months after the period in which a stop payment notice may be given under section 9356.

The stop payment notice is the second route, reaching undisbursed public funds rather than property. And where a required payment bond was never given and approved, Civil Code section 9552 provides that the public entity may not audit, allow, or pay the direct contractor’s claim, and directs claimants to the stop payment notice procedure — so the absence of a bond redirects the remedy rather than removing it.

Both routes have preliminary notice as a prerequisite, with the payment bond carrying the saving mechanism covered on the bond guide. On public work, preliminary notice goes to the public entity and to the direct contractor.