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Overview

California government contract disputes arise when public agencies fail to pay contractors, wrongfully terminate contracts, or award contracts improperly. The California Public Contract Code provides extensive protections for contractors dealing with state, county, city, and special district agencies.

Key Protection: Under Public Contract Code Section 7107, public agencies must release undisputed progress payments within 30 days of invoice submission, with interest penalties of 1% per month for late payments.

A demand letter for government contract disputes should address:

  • Non-payment or late payment of invoices
  • Wrongful contract termination
  • Bid protest and award challenges
  • Change order disputes
  • Contract interpretation issues
  • Retention release demands
  • Stop notice and bond claims
Important: Government contract claims have strict deadlines. Claims against state agencies must generally be filed within 6 months under Government Code Section 911.2. Contract claims under PCC 9204 require written notice within specific timeframes.
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Legal Basis

Several California statutes protect contractors in government contract disputes:

Public Contract Code Section 7107 - Prompt Payment ▾

This section requires timely payment on public works contracts:

  • Progress Payments: Agency must pay within 30 days of invoice for undisputed amounts
  • Retention Release: Must release retention within 60 days of substantial completion
  • Interest Penalties: 1% per month interest on late payments
  • Dispute Resolution: Agency must notify contractor of disputed amounts within 7 days

The agency cannot withhold entire payment due to a partial dispute.

PCC Section 9204 - Claims Resolution Process ▾

Establishes mandatory claims resolution process for public works contracts:

  • Written Claim Required: Submit claim within 45 days of contract completion or dispute
  • Agency Response: 45 days to respond with written statement
  • Meet and Confer: Mandatory informal meeting to resolve disputes
  • Mediation Option: Either party may demand non-binding mediation

Applies to all public works contracts entered after January 1, 2017.

California False Claims Act (Gov. Code 12650-12656) ▾

Provides remedies against agencies and contractors who defraud the government:

  • Treble Damages: Three times the amount of actual damages
  • Civil Penalties: $5,500 to $11,000 per false claim
  • Qui Tam Actions: Private citizens can file suits on behalf of the state
  • Whistleblower Protection: Protection against retaliation for reporting fraud

Statute of limitations is 3 years from discovery, or 10 years from violation, whichever is earlier.

PCC Sections 10100-10240 - Competitive Bidding ▾

Governs the competitive bidding process for state contracts:

  • Lowest Responsible Bidder: Contract must go to lowest responsible bidder
  • Bid Protests: Right to protest award within 5 working days
  • Responsiveness: Minor irregularities may be waived
  • Bid Mistakes: Process for correcting clerical errors

Bid protest deadlines vary by agency - check specific agency regulations.

Government Code Section 927.6 - State Payment Deadline ▾

Sets payment requirements for state agency contracts:

  • 45-Day Deadline: State agencies must pay within 45 days of invoice
  • 15-Day Review: Agency has 15 days to notify of defective invoice
  • Penalty Interest: 15% annual interest on late payments
  • Small Business Priority: Expedited payment for certified small businesses
Critical Notice: Under Government Code Section 905, claims against public entities for money or damages must be filed within 6 months of accrual. Failure to file a timely claim bars your lawsuit.
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Evidence Checklist

Gather this evidence to support your government contract claim:

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Contract Documents

Executed contract, amendments, change orders, and all attachments

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Bid Documents

RFP/IFB, your bid submission, bid tabulations, and award notice

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Payment Records

All invoices, progress payment applications, retention schedule, and payment history

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Correspondence

All emails, letters, RFIs, and communications with the agency

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Project Documentation

Daily logs, meeting minutes, inspection reports, and progress photos

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Change Order Documentation

Extra work claims, force account records, and delay documentation

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Performance Bond and Stop Notices

Bond documents, stop notice filings, and bond claims if applicable

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Termination Documents

Termination notice, cure notices, and response correspondence

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Calculate Damages

Government contract damages can include multiple categories:

Unpaid Contract Amount $150,000
Unreleased Retention (5%) $25,000
Approved Change Orders (unpaid) $35,000
Interest (1%/month x 6 months) $12,600
Delay Damages $42,000
Total Claim $264,600
Contract Balance ▾

The unpaid balance of the original contract amount for work completed:

  • Progress payments not yet received
  • Final payment upon completion
  • Milestone payments earned but withheld
Retention Release ▾

Under PCC 7107, agencies must release retention within 60 days of substantial completion:

  • Typically 5% of contract value withheld
  • Must be placed in escrow or released with interest
  • Cannot withhold for minor punch list items
Change Order Amounts ▾

Extra work performed outside original scope:

  • Approved change orders not yet paid
  • Pending change orders for directed work
  • Constructive change claims (work required by agency direction)
Delay and Impact Costs ▾

Recoverable if agency caused project delays:

  • Extended general conditions (supervision, equipment)
  • Labor inefficiency from disruption
  • Material escalation costs
  • Home office overhead (Eichleay formula)
  • Lost profits on other projects
False Claims Act: If you discover the agency or another contractor submitted false claims, you may recover treble damages plus penalties of $5,500-$11,000 per false claim under the California False Claims Act.
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Sample Language

Use this template language for your government contract demand letter:

Payment Demand - Progress Payment
[Your Company Letterhead] [Date] VIA CERTIFIED MAIL - RETURN RECEIPT REQUESTED [Agency Name] [Contracting Officer Name] [Address] Re: Demand for Payment Under Contract No. [Contract Number] Project: [Project Name] Amount Due: $[Amount] Dear [Contracting Officer]: This letter constitutes formal demand for payment pursuant to California Public Contract Code Section 7107 and Government Code Section 927.6. [Your Company Name] is the prime contractor on the above-referenced public works project. On [Invoice Date], we submitted Payment Application No. [Number] in the amount of $[Amount] for work completed through [Period End Date]. Pursuant to PCC Section 7107, the undisputed amount is due within thirty (30) days of proper invoice submission. As of this letter, [Number] days have elapsed without payment, and no written notice of disputed amounts has been provided within the seven (7) day requirement. Your failure to pay constitutes a material breach of the contract and triggers interest penalties of one percent (1%) per month under PCC Section 7107(a). DEMAND IS HEREBY MADE for the following amounts: 1. Progress Payment No. [Number]: $[Amount] 2. Accrued Interest (1%/month): $[Amount] 3. Total Amount Due: $[Amount] Payment must be received within fifteen (15) days of this letter. If payment is not received, we will pursue all available remedies including filing a Government Tort Claim pursuant to Government Code Section 905, commencing litigation, and seeking recovery of attorneys' fees. This letter is not intended to waive any claims or rights under the contract, at law, or in equity. Sincerely, [Your Name] [Title] [Company Name] cc: [Agency Director] [Surety, if bonded]
Bid Protest Letter
[Your Company Letterhead] [Date] VIA CERTIFIED MAIL AND EMAIL [Agency Clerk/Secretary] [Agency Name] [Address] Re: Bid Protest - [Project Name] IFB/RFP No.: [Solicitation Number] Apparent Awardee: [Winning Bidder] Dear [Clerk]: Pursuant to California Public Contract Code Section [10100/20162/applicable section] and [Agency Name] Bid Protest Procedures, [Your Company Name] hereby files this formal protest of the award of the above-referenced contract to [Winning Bidder]. GROUNDS FOR PROTEST 1. [Winning Bidder] is not a responsible bidder because: [Describe specific responsibility issues - licensing, experience, bonding, etc.] 2. [Winning Bidder]'s bid was non-responsive because: [Describe specific responsiveness issues - missing documents, incorrect forms, etc.] 3. The evaluation process was flawed because: [Describe procedural irregularities] SUPPORTING EVIDENCE [List specific documents and facts supporting each ground] REQUESTED RELIEF 1. Rejection of [Winning Bidder]'s bid as non-responsive or [Winning Bidder] as non-responsible; 2. Award of the contract to [Your Company] as the lowest responsible, responsive bidder; or 3. Re-solicitation of the project if the integrity of the bidding process was compromised. We request an opportunity to present our protest at the agency's protest hearing. Sincerely, [Your Name] [Title] [Company Name]
PCC 9204 Claim Notice
[Your Company Letterhead] [Date] VIA CERTIFIED MAIL - RETURN RECEIPT REQUESTED [Agency Name] [Project Manager Name] [Address] Re: Claim Pursuant to Public Contract Code Section 9204 Contract No.: [Number] Project: [Project Name] Claim Amount: $[Amount] Dear [Project Manager]: In accordance with California Public Contract Code Section 9204, [Your Company Name] hereby submits this written claim for additional compensation and time arising from the above-referenced project. CLAIM DESCRIPTION [Detailed description of claim, including: - What occurred - When it occurred - Who was involved - Impact on project] BASIS FOR CLAIM This claim is based on: 1. [Contract provision breached] 2. [Applicable law or regulation] 3. [Industry standard or custom] QUANTUM OF CLAIM Labor: $[Amount] Materials: $[Amount] Equipment: $[Amount] Subcontractor Costs: $[Amount] Overhead and Profit: $[Amount] Extended General Conditions: $[Amount] TOTAL CLAIM: $[Amount] TIME EXTENSION REQUESTED: [Number] calendar days SUPPORTING DOCUMENTATION [List all attached exhibits] Pursuant to PCC 9204, the Agency has forty-five (45) days to respond to this claim with a written statement identifying which portions are disputed and the basis for the dispute. Failure to respond within 45 days constitutes acceptance of the claim. We are prepared to participate in the meet and confer process and, if necessary, mediation as required by PCC 9204. Sincerely, [Your Name] [Title] [Company Name] Attachments: [List]
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Next Steps

After sending your demand letter, follow this action plan:

1. File Government Claim (Within 6 Months) ▾

Before suing, you must file a formal claim under Government Code Section 905:

  • State Agencies: File with California Government Claims Board
  • Local Agencies: File with agency clerk or designated officer
  • Deadline: 6 months from accrual of cause of action
  • Late Claims: May petition for late claim within 1 year under limited circumstances

Use a formal Government Claim form (GC-910 or agency equivalent).

2. Follow PCC 9204 Process ▾

For public works contracts, complete the mandatory claims resolution process:

  • Submit written claim within 45 days of completion or dispute
  • Wait for agency's 45-day response period
  • Participate in meet and confer conference
  • Request mediation if meet and confer fails
3. Pursue Stop Notice or Bond Claim ▾

If you are owed money on a public works project:

  • Stop Notice: File bonded stop notice with agency to freeze funds
  • Payment Bond: Make claim against prime contractor's payment bond
  • Deadline: Generally 90 days after completion for bond claims
4. File Lawsuit ▾

If claims are rejected or unpaid:

  • After Claim Rejection: 6 months to file suit after rejection
  • If No Response: Claim deemed rejected after 45 days
  • Venue: Generally in county where contract was performed
  • Remedies: Contract damages, interest, attorneys' fees if provided
5. Consider Qui Tam Action ▾

If you have evidence of fraud against the government:

  • File qui tam suit under California False Claims Act
  • Receive 15-33% of recovery as whistleblower reward
  • File under seal to allow government investigation
  • Protection against employer retaliation
Critical Deadlines: Government contract claims have the strictest deadlines in California law. Missing a deadline can permanently bar your claim. Track all dates carefully and consider consulting with a construction attorney.

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