Cal. Codes » Public Contract Code / DIVISION 2. GENERAL PROVISIONS / PART 1. ADMINISTRATIVE PROVISIONS / CHAPTER 7. Contract Clauses
California Codes

Cal. Public Contract Code § 7107 (2026)

Contract Clauses

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(a)This section is applicable with respect to all contracts entered into on or after January 1, 1993, relating to the construction of any public work of improvement.

(b)The retention proceeds withheld from any payment by the public entity from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section.

(c)Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released. In the event of a dispute between the public entity and the original contractor, the public entity may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. For purposes of this subdivision, “completion” means any of the following:

(1)The occupation, beneficial use, and enjoyment of a work of improvement, excluding any operation only for testing, startup, or commissioning, by the public agency, or its agent, accompanied by cessation of labor on the work of improvement.

(2)The acceptance by the public agency, or its agent, of the work of improvement.

(3)After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 100 days or more, due to factors beyond the control of the contractor.

(4)After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 30 days or more, if the public agency files for record a notice of cessation or a notice of completion.

(d)Subject to subdivision (e), within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor’s share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract.

(e)The original contractor may withhold from a subcontractor its portion of the retention proceeds if a bona fide dispute exists between the subcontractor and the original contractor. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount.

(f)In the event that retention payments are not made within the time periods required by this section, the public entity or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to attorney’s fees and costs.

(g)If a state agency retains an amount greater than 125 percent of the estimated value of the work yet to be completed pursuant to Section 10261, the state agency shall distribute undisputed retention proceeds in accordance with subdivision (c). However, notwithstanding subdivision (c), if a state agency retains an amount equal to or less than 125 percent of the estimated value of the work yet to be completed, the state agency shall have 90 days in which to release undisputed retentions.

(h)Any attempted waiver of the provisions of this section shall be void as against the public policy of this state.

Notes of Decisions
Cited in 21 cases (6 in the last 5 years), 2001–2025 · leading case: United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., 416 P.3d 792 (Cal. 2018).
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United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., 416 P.3d 792 (Cal. 2018). · cites it 2× “3d 419 , which concluded the text of *1096 Public Contract Code section 7107 was unambiguous and allowed withholding based on any dispute.”
Tesco Controls, Inc. v. Monterey Mech. Co., 124 Cal. App. 4th 780 (Cal. Ct. App. 2004). · cites it 3× “5, Public Contract Code section 10262.5, and, as later amended, Public Contract Code section 7107 in lieu of Business and Professions Code section 7107.”
Fassberg Constr. Co. v. Hous. Auth., 152 Cal. App. 4th 720 (Cal. Ct. App. 2007). “Public Contract Code section 7107, subdivision (c) states in relevant part, “Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released.”
Morton Eng'g & Constr., Inc. v. Patscheck, 87 Cal. App. 4th 712 (Cal. Ct. App. 2001). · cites it 2× “) Public Contract Code section 7107, 5 subdivision (d) requires the contractor on any work of public improvement to pay the subcontractor its portion of the retention proceeds within seven *719 days of receipt by the 6 The failure of the contractor to comply with this…”
Martin Bros. Constr. v. Thompson Pac. Constr., Inc., 179 Cal. App. 4th 1401 (Cal. Ct. App. 2009). · cites it 2× “Public Contract Code Section 7107—Retention Payments Public Contract Code section 7107 (section 7107) is applicable to contracts for the construction of any public work of improvement and governs the payment of retention proceeds by the public entity owner and by the general…”
Yassin v. Solis, 184 Cal. App. 4th 524 (Cal. Ct. App. 2010). “) Public Contract Code section 10261 provides that, “[t]he department shall withhold not less than 5 percent of the contract price until final completion and acceptance of the project.”
Mepco Servs., Inc. v. Saddleback Valley Unified Sch. Dist., 189 Cal. App. 4th 1027 (Cal. Ct. App. 2010). “5, Civil Code sections 1717 and 3287, Public Contract Code section 7107, and the terms of the performance bond that was part of the Project documents.”
East West Bank v. Rio Sch. Dist., 235 Cal. App. 4th 742 (Cal. Ct. App. 2015). “Public Contract Code section 7107 (section 7107) allows a public entity to withhold funds due a contractor when there are liens on the *745 property or a good faith dispute concerning whether the work was properly performed.”
FASSBERG CONST. CO. v. Hous. Auth., 151 Cal. App. 4th 267 (Cal. Ct. App. 2007). “[3] Public Contract Code section 7107, subdivision (c) states in relevant part, "Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released.”
Suffolk Constr. v. Los Angeles Unified Sch. Dist., 90 Cal. App. 5th 849 (Cal. Ct. App. 2023). · cites it 2× “34 The $111,714 represented LAUSD’s 33 Public Contract Code section 7107, subdivision (c) provides that “[i]n the event of a dispute between the public entity and the original contractor” the public entity may withhold from the contractor’s payment a certain percentage of the…”
Suffolk Constr. Co. v. Los Angeles Unified Sch. Dist., 90 Cal. App. 5th 849 (Cal. Ct. App. 2023). · cites it 2× “34 The $111,714 represented LAUSD’s 33 Public Contract Code section 7107, subdivision (c) provides that “[i]n the event of a dispute between the public entity and the original contractor” the public entity may withhold from the contractor’s payment a certain percentage of the…”
Morrow-Meadows Corp. v. Honeywell Int'l Inc., No. 2:22-cv-05716 (C.D. Cal. Oct. 24, 2022). · cites it 2× “The final statute Plaintiff cites to, 7 California Public Contract Code section 7107, holds 8 contractors must pay its subcontractors their share of 9 retention proceeds within the same seven-day timeframe.”
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