CSLB Contractor's Law & Business Practice Exam

What effect does filing a stop notice have on construction funds for a public work of improvement?

1. It creates a lien on the construction funds.

2. It allows the contractor to claim additional work.

3. It enables immediate payment from the prime contractor.

4. It cancels the contract with the prime contractor.

The correct answer is: It creates a lien on the construction funds.

Filing a stop notice is a legal mechanism used primarily in the context of public works projects to protect the interests of subcontractors, suppliers, or others who have provided labor or materials but have not been paid. By filing a stop notice, the claimant effectively creates a lien on the construction funds that are specifically allocated for the project. This means that the construction funds cannot be disbursed to the prime contractor or other parties without addressing the claims made in the stop notice first. This mechanism ensures that those who have contributed to the project have a defined recourse to obtain payment from the funds held by the public agency. It serves as a protective measure and helps prevent situations where those providing essential services or materials could be left uncompensated due to the contractual dynamics of the project. In contrast to other choices, which pertain to different aspects of the contractual relationship or payment processes, the creation of a lien on the construction funds directly aligns with the primary purpose and effect of filing a stop notice.