Matthew DeVries | Best Practices Construction Law
While most states have enacted various forms of prompt payment laws for construction projects, California Senate Bill 440, known as the Private Works Change Order Fair Payment Act, marks a pivotal change in how payment obligations related to change orders are handled on private construction projects. Signed into law on October 10, 2025 by Governor Newsom, its implementation will affect owners, developers, contractors, and subcontractors alike. Importantly, it sets clear standards for processing change-order claims, imposing decisive deadlines and remedies.
The Big Picture
SB 440, effective for private contracts beginning on January 1, 2026, establishes a formal claim resolution process for work stemming from change orders on private projects. Key provisions include:
- A contractor or subcontractor may submit a claim (for a time extension or additional compensation) and the owner must provide a written statement within 30 days identifying disputed and undisputed portions.
- Payment of undisputed portions must occur within 60 days after the owner issues the written response.
- If the owner fails to respond, or parts remain in dispute, the parties must meet and confer and then submit remaining issues to nonbinding mediation.
- Undisputed amounts not paid on time accrue interest at 2% per month (or 24% annually).
A Contractor’s Perspective
From the viewpoint of contractors and subcontractors, and especially those handling change-order work, the law offers new protections. As one trade association put it prior to the Governor’s signature:
“This bill would bring much needed fairness and structure to private work change order processes by extending the successful AB 626 framework to the private sector. It ensures timely payment, allows contractors to initiate payment processes, and promotes nonbinding mediation over costly litigation.” — Northern California Chapter of the National Electrical Contractors Association (NECA)
For many contractors like those represented by NECA, the law is viewed as a mechanism to level the playing field when change orders alter scope, schedule, or cost.
Impact for Owners and Developers
For owners and developers, SB 440 introduces heightened administrative discipline and demands:
- Review and approval processes must align with the statutory timelines.
- Contract templates must be updated to reflect the new claim timeline and payment trigger obligations.
- Financial planning must anticipate that undisputed change-order amounts will be due within 60 days.
- Risk management must account for potential work suspensions or stop-work notices if undisputed payments are delayed.
Impact for Contractors and Subcontractors
For contractors and subcontractors, the law changes their operational landscape:
- The ability to issue claims provides stronger leverage when change orders are delayed.
- The prohibition of indefinite “pay-when-paid” or “pay-if-paid” practices delays downstream payment chains and reduces risk of cash-flow gaps.
- Documentation, notice, and tracking systems become vital to preserve rights under the statute.
Practical Next Steps
To prepare for SB 440’s effective date of January 1, 2026, project stakeholders should begin by reviewing and revising their existing contract templates to incorporate the new timelines and procedures established under the law. Internal workflows for claim submission, owner review, and payment trackingshould be developed or refined to ensure compliance with statutory deadlines. Training programs for project managers, administrators, and accounting personnel will be essential so that teams understand the documentation and procedural requirements for change orders and payment claims. Finally, budgeting and cash-flow strategies must be adjusted to accommodate the 60-day payment requirement for undisputed amounts.
SB 440 appears to significantly reshape payment dynamics on California’s private construction projects, and its success in promoting timely payment and reducing disputes will depend on how effectively each party implements and adheres to these new processes.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.