CSLB Contractor's Law & Business Practice Exam

What action should a contractor take if the owner is having difficulty making progress payments on time?

1. Request a payment plan

2. Ask the owner to open an escrow account

3. Remove the contractor from the project

4. Stop all work until paid

The correct answer is: Ask the owner to open an escrow account

Opening an escrow account is an effective way for contractors to ensure that funds for construction projects are managed securely and that payments are made in a timely manner. An escrow account involves a neutral third party holding funds until specific conditions are met, which can ease any anxiety the owner may have about making payments directly to the contractor. This arrangement protects both the contractor and the owner, as the funds are guaranteed to be available for payment when needed, helping to maintain positive relations and project momentum. In contrast, requesting a payment plan may not provide the immediate security needed for ongoing work, and if payments are late, it could prolong the issue without offering a solid solution. Removing the contractor from the project would only escalate tensions and prolong delays, while stopping all work until paid can lead to disputes and a strain on the contractual relationship, making resolution more difficult. Therefore, proposing the establishment of an escrow account directly addresses the financial concern while promoting trust and accountability in the contractor-owner relationship.