State prompt payment laws: the same 7 days, three penalties

All three states give a prime contractor seven days to pass money down the chain. That is where the similarity ends.

The owner's deadline is 30 days in California, 35 in Texas, and 30 after approval in New York. The penalty is 2 percent a month in California, 1.5 in Texas, 1 in New York. Two of the three award attorney's fees. Only one lets you walk off the job. Federal construction contracts run on a different clock entirely, set by the FAR: federal prompt payment: 14 days, and only for a proper invoice.

Here is the whole picture.

The three states side by side

Note the direction of the retainage rules in the last row. Texas requires the owner to hold ten percent. New York forbids the owner from holding more than five. A contractor who carries one assumption across state lines will be wrong — the full picture, including California's public-works cap, is in retainage limits: 10 percent in Texas, 5 percent in New York. The same three states also run on entirely different lien deadlines: mechanics lien deadlines, four states, four different calendars.

California: the fastest penalty clock in the three

California puts the same rate on both levels of the chain, which is unusual and useful.

Owner to direct contractor — Civil Code § 8800(a):

"Except as otherwise agreed in writing by the owner and direct contractor, the owner shall pay the direct contractor, within 30 days after notice demanding payment pursuant to the contract is given, any progress payment due as to which there is no good faith dispute between them."

Where a good faith dispute exists, § 8800(b) permits the owner to withhold "an amount not in excess of 150 percent of the disputed amount." So a $4,000 dispute justifies holding $6,000 — not the whole draw.

And the penalty, § 8800(c):

"An owner that violates this section is liable to the direct contractor for a penalty of 2 percent per month on the amount wrongfully withheld, in place of any interest otherwise due. In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and a reasonable attorney's fee."

Two features worth noticing. The penalty is in place of any interest otherwise due, not on top of it. And the fee award goes to the prevailing party — which cuts both ways if your claim was weak.

Prime to subcontractor — Business and Professions Code § 7108.5(a):

"A prime contractor or subcontractor shall pay to any subcontractor, not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein."

Same 150 percent withholding limit for a good faith dispute. Same 2 percent per month penalty, "payable to the subcontractor … for every month that payment is not made" (§ 7108.5(b)). Same prevailing-party fee rule (§ 7108.5(c)).

And a fourth consequence that has no counterpart in Texas or New York: § 7108.5(b) makes a violation "a cause for disciplinary action" against the license. Section 7108.5(d) confirms the sanctions are "separate from, and in addition to, all other remedies, either civil, administrative, or criminal."

The section applies "to all private works of improvement and to all public works of improvement", except where Public Contract Code § 10262 applies (§ 7108.5(e)).

Note the escape hatch in both provisions: "unless otherwise agreed to in writing" in § 7108.5(a), and "[e]xcept as otherwise agreed in writing" in § 8800(a). California's deadlines are default rules, and a subcontract can move them.

Texas: the simplest statute, the plainest interest

Texas Property Code chapter 28 is two operative sentences.

Section 28.002(a): the owner "shall pay the amount to the contractor … not later than the 35th day after the date the owner receives the request."

Section 28.002(b): "The payment required by this subsection must be made not later than the seventh day after the date the contractor receives the owner's payment."

And section 28.004(b): "An unpaid amount bears interest at the rate of 1-1/2 percent each month." Interest begins "on the day after the date on which the payment becomes due" (§ 28.004(a)).

Eighteen percent a year, accruing automatically, on a payment request that the owner has received. There is no notice to give and no penalty to claim — the interest simply runs.

That makes chapter 28 the fastest lever in Texas construction, and it is quietly more useful than the lien statute for most disputes. A lien takes months and a court. Interest at 1.5 percent a month starts on day 36, and the person who has to explain it internally is the owner's controller.

New York: the only one where you can stop work

New York's payment machinery is in General Business Law article 35-E, and it has a feature the other two lack.

The deadlines — § 756-a. "Payment of an interim or final invoice shall be due from the owner not later than thirty days after approval of the invoice." And down the chain, the contractor "shall pay to the subcontractor … seven days after receipt of good funds for each interim or final payment."

The interest — § 756-b. "[T]he owner shall pay the contractor interest beginning on the next day at the rate of one percent per month or fraction of a month on the unpaid balance." Note "or fraction of a month": a payment three days late accrues a full month's interest.

The remedy — § 756-b. This is the provision to know:

"A contractor may suspend contractually required performance, only after providing the owner written notice and an opportunity to cure"

and

"A contractor intending to suspend performance must provide the owner written notice at least ten calendar days before the contractor's intended suspension."

Crucially, the section provides that "[a] contractor shall not be deemed in breach of the construction contract for suspending performance" under it. That sentence is what makes the right usable — without it, walking off site would be a breach that costs more than the unpaid invoice.

The fast track — § 756-b. Where attempts at resolution fail, "[t]he aggrieved party may refer the matter to the American Arbitration Association for an expedited arbitration", on notice given "not less than fifteen days of the receipt of third party verification of delivery of the complaint."

And the retainage — § 756-c. "An owner may retain no more than five per centum of the contract sum as retainage", and "[r]etainage shall be released by the owner to the contractor no later than thirty days after the final approval of the work."

Three habits that work in all three states

Every one of these statutes triggers on an event you either documented or did not.

1. Record the date the request or invoice was sent and received. California counts from notice demanding payment; Texas from the date the owner receives the request; New York from approval of the invoice. All three arguments are arguments about a date.
2. Record the date you were paid, per payment. Your seven days to the subs run from that, in all three states.
3. Make the disputed amount explicit and separate. California caps withholding at 150 percent of the disputed amount at both levels — which is only enforceable if the disputed amount is identifiable. A single held draw with no stated dispute is the shape of an unlawful withholding.

And one negotiation point specific to California: both § 8800(a) and § 7108.5(a) can be varied "in writing". Read the payment clause of a subcontract before you sign it, because the statute will not save you from what you agreed to.

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Current as of August 29, 2026. This article describes private-work prompt payment provisions in California, Texas and New York only, and is not legal advice. It does not cover public works (which run under separate statutes in each state, including California Public Contract Code § 10262 and § 7201), federal contracts, the definition of a good faith dispute, notice content and service requirements, retainage release procedures in California, or the forty-seven other states. The provisions quoted were checked on the date shown. Consult a construction attorney in the relevant state.

What Zirko does: it produces documents with recorded payment terms and individual positions, keeps interim and final documents on one job, and records what was sent and when. Zirko does not track payment deadlines, does not calculate statutory interest or penalties, does not generate notices of suspension and gives no legal advice. In the United States the business enters its own tax rates. Issued documents are immutable; a correction is a separate document, so a disputed billing history stays readable.