Question
Can we continue to make payments to contractors as long as we have retention to cover stop notice?

Answer
Retention is the amount required by PCC 9203 to be withheld for public works contracts exceeding $5,000 and is payable to the contractor upon completion of the project. A stop notice is a demand from a sub-contractor or supplier to withhold funds due to the contractor which per CC 3186 requires the district to withhold an amount sufficient to answer the claim plus a reasonable cost of possible litigation (125% of amount of Stop Notice). The district is required to withhold funds at the time of receipt of the Stop Notice.

The district can continue to make progress payments to the contractor as long as the retention is not less than 5% of the completed project to date. However, a district is not exempt from withholding the required funds from the amount due to the contractor upon receipt of Stop Notice from the sub-contractor even though there is enough Retention to cover the Stop Notice. The retention does not satisfy the Stop Notice withholding requirement.