{"id":904995,"date":"2025-11-11T14:13:51","date_gmt":"2025-11-11T21:13:51","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=904995"},"modified":"2025-11-11T14:13:55","modified_gmt":"2025-11-11T21:13:55","slug":"retention-cap-now-5-california-private-projects","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/retention-cap-now-5-california-private-projects\/","title":{"rendered":"New 5% Retention Cap\u00a0for\u00a0California Private Projects: Key Impacts for Contracting Parties"},"content":{"rendered":"\n<p>Allison B. Etkin | <a href=\"https:\/\/www.akerman.com\/en\/perspectives\/new-5-retention-cap-for-california-private-projects-key-impacts-for-contracting-parties.html\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">Akerman<\/a><\/p>\n\n\n\n<p>Effective January 1, 2026, California will implement significant changes to private construction payment practices. Joining nine other states, Senate Bill 61, signed by Governor Gavin Newsom on July 14, 2025, amends California\u2019s Prompt Payment Statute to establish a mandatory <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/retention-law-caps-for-private-construction-projects-california\/\">5% cap on retention<\/a> for private construction contracts.\u00a0Until now, California law set no statutory cap on private project retention \u2014 though parties have typically withheld 10%. The new rule aligns private projects with the 5% retention limit long applied to public works.<\/p>\n\n\n\n<p>Under the amended statute (<em>Civil Code<\/em>&nbsp;\u00a7 8811), owners, direct contractors, and subcontractors may not withhold more than 5% of any progress payments as retention.&nbsp;Additionally, the total retention withheld over the life of the contract cannot exceed 5% of the contract price. The 5% cap flows down the payment chain. Moreover, in contracts between a direct contractor and a subcontractor (and further down the chain), the retention percentage cannot exceed the percentage specified in the owner-direct contractor agreement. The 5% cap is non-negotiable \u2014 any contract provision providing for higher retention will be unenforceable.<\/p>\n\n\n\n<p>The statute also includes a mandatory attorneys\u2019 fees provision for prevailing parties who successfully enforce compliance, heightening the potential legal and financial risks associated with nonconforming contract terms. (<em>Civil Code<\/em>&nbsp;\u00a7 8811(c)).<\/p>\n\n\n\n<p>There are two exceptions to the 5% cap:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>The cap does not apply if, before or at the time of bidding, a direct contractor or subcontractor notifies a subcontractor that a performance and payment bond is required, and the subcontractor fails to provide such a bond (<em>Civil Code<\/em>\u00a0\u00a7 8811(b)(2)). Note, this exception is not written to apply between the owner and direct contractor.<\/li>\n\n\n\n<li>The cap does not apply to residential projects that are not mixed-use and do not exceed four stories<em>\u00a0<\/em>(<em>Civil Code<\/em>\u00a0\u00a7 8811(b)(3)).<em>\u00a0<\/em>Note, neither \u201cresidential\u201d nor \u201cmixed-use\u201d are defined by the statute.<\/li>\n<\/ol>\n\n\n\n<p>This statutory change will affect how payment security and project risk are managed throughout the construction chain. With less retention available, owners and developers may look to adjust project controls through enhanced performance monitoring, tightened milestone-based payment schedules, and a reassessment of prequalification and bonding requirements.<\/p>\n\n\n\n<p>The key takeaway is that this new law does not eliminate financial risk \u2014 it redistributes it. With the new year approaching, owners, developers, and all parties subcontracting work should review their contract templates, master agreements, and project administration procedures to ensure compliance before the January 2026 effective date. Akerman\u2019s construction team is available to help you navigate this transition by evaluating your current practices and updating contract language to align with the amended Prompt Payment Statute.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p><strong>When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes &#8211; please call Advise &amp; Consult, Inc. at 888.684.8305, or email <a href=\"mailto:experts@adviseandconsult.net\">experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Allison B. Etkin | Akerman Effective January 1, 2026, California will implement significant changes to private construction payment practices. Joining nine other states, Senate Bill 61, signed by Governor Gavin Newsom on July 14, 2025, amends California\u2019s Prompt Payment Statute to establish a mandatory 5% cap on retention for private construction contracts.\u00a0Until now, California law&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/retention-cap-now-5-california-private-projects\/\">Continue reading <span class=\"screen-reader-text\">New 5% Retention Cap\u00a0for\u00a0California Private Projects: Key Impacts for Contracting Parties<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,88,224,12247,12246],"class_list":["post-904995","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-california","tag-construction-contract","tag-retention-cap","tag-senate-bill-61","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>New 5% Retention Cap\u00a0for\u00a0California Private Projects: Key Impacts for Contracting Parties - Advise &amp; 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