{"id":905186,"date":"2025-12-29T16:55:30","date_gmt":"2025-12-29T23:55:30","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=905186"},"modified":"2025-12-29T16:55:32","modified_gmt":"2025-12-29T23:55:32","slug":"private-construction-projects-california-overhaul","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/private-construction-projects-california-overhaul\/","title":{"rendered":"California Overhauls Private Sector Construction Payment Practices"},"content":{"rendered":"\n<p>Richard McDonald, Cory Mickels and Jay Ross | <a href=\"https:\/\/www.lathropgpm.com\/insights\/california-overhauls-private-sector-construction-payment-practices\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">Lathrop GPM<\/a><\/p>\n\n\n\n<p>Two new California statutes taking effect January 1, 2026, will significantly change the way <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/private-construction-projects-california-new-rules\/\">private construction projects<\/a> are contracted, administered and paid:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/leginfo.legislature.ca.gov\/faces\/billNavClient.xhtml?bill_id=202520260SB61\"><strong>SB 61<\/strong><\/a>\u00a0establishes a new 5% maximum retention cap across all tiers of contracting for most private projects.<\/li>\n\n\n\n<li><a href=\"https:\/\/leginfo.legislature.ca.gov\/faces\/billNavClient.xhtml?bill_id=202520260SB440\"><strong>SB 440<\/strong><\/a>, the Private Works Change Order Fair Payment Act, imposes a mandatory, time\u2011bound dispute resolution and payment framework for change order and time\u2011extension claims.<\/li>\n<\/ul>\n\n\n\n<p>Both laws require immediate updates to standard contract forms, internal workflows and project management practices.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">SB 61: The New 5% Retention Cap<\/h4>\n\n\n\n<p>SB 61 adds Civil Code section 8811 and imposes a strict 5% retention cap on all private works of improvement entered into on or after January 1, 2026. The cap must apply uniformly at every tier, preventing owners or general contractors from shifting liquidity burdens downstream. This represents a major shift away from the longstanding 10% industry norm.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Exceptions<\/em><\/h5>\n\n\n\n<p>There are two narrow exceptions:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Missing Bonds:<\/strong>\u00a0If a subcontractor is informed in writing before or at bid time that performance and payment bonds are required and subsequently fails to furnish those bonds, the retaining party may withhold up to 10%.<\/li>\n\n\n\n<li><strong>Certain Residential Projects:<\/strong>\u00a0SB 61 does not apply to non-mixed-use residential projects that do not exceed four stories.<\/li>\n<\/ul>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Enforcement and Risk<\/em><\/h5>\n\n\n\n<p>Prevailing parties in actions enforcing the cap are entitled to attorney fees. This increases risk for parties who attempt to maintain 10% retention after 2025.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">SB 440: Mandatory Change Order Claim Procedures<\/h4>\n\n\n\n<p>SB 440 creates a uniform claims resolution process for private projects. It is modeled on the public works claims statute, and aims to prevent delayed or partial payment of change order and time\u2011extension claims.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><em>What Counts as a Claim<\/em><\/h5>\n\n\n\n<p>A \u201cclaim\u201d is any written demand sent by registered or certified mail seeking:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A time extension (including relief from owner\u2011assessed delay damages),<\/li>\n\n\n\n<li>Payment for approved changes in scope, or<\/li>\n\n\n\n<li>Payment of amounts disputed by the owner.<\/li>\n<\/ul>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Owner Response Deadlines<\/em><\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Owners must undertake a reasonable review and respond in writing within 30 days, identifying undisputed and disputed portions.<\/li>\n\n\n\n<li>Failure to respond constitutes a denial but is expressly not an adverse finding on the merits.<\/li>\n\n\n\n<li>Undisputed amounts must be paid within 60 days, with interest accruing at 2% per month on late payments.<\/li>\n<\/ul>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Meet\u2011and\u2011Confer and Mediation<\/em><\/h5>\n\n\n\n<p>If disputes persist after the initial response:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Contractor may request a meet\u2011and\u2011confer; owner must schedule within 30 days.<\/li>\n\n\n\n<li>Owner must issue a follow\u2011up written statement within 10 days.<\/li>\n\n\n\n<li>Remaining issues proceed to nonbinding mediation.<\/li>\n\n\n\n<li>Litigation or arbitration may occur only after mediation, unless the parties waive steps after a claim arises.<\/li>\n<\/ul>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Stop\u2011Work Rights<\/em><\/h5>\n\n\n\n<p>If an owner fails to pay undisputed sums, a contractor or subcontractor may suspend performance without penalty after issuing a notice of amount due, waiting 30 days and then serving a 10\u2011day notice of intent to stop work.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Subcontractor Claims<\/em><\/h5>\n\n\n\n<p>Direct contractors must present subcontractor claims upon request, and cannot settle them without the subcontractor\u2019s consent. Subcontractors retain all statutory rights, including mechanics\u2019 liens and stop\u2011work rights.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Sunset Provision<\/em><\/h5>\n\n\n\n<p>The act is scheduled to sunset on January 1, 2030.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">What This May Mean for You<\/h4>\n\n\n\n<p>SB 61 and SB 440 collectively overhaul the legal framework governing private\u2011sector payment practices in California. SB 61\u2019s cap retention is intended to improve cash flow throughout the construction chain, while SB 440\u2019s detailed claims resolution process is intended to accelerate dispute handling and reduce payment abuse in change order situations. Both laws include strong enforcement mechanisms and require significant updates to contracting practices before 2026.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><em>Action Steps<\/em><\/h5>\n\n\n\n<p>To prepare for the new requirements taking effect on January 1, businesses should:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Review all owner\u2011contractor agreements<\/strong>\u00a0executed after January 1, 2026, with counsel to ensure compliance.<\/li>\n\n\n\n<li><strong>Update subcontracts<\/strong>, including those issued under master service agreements, to reflect new retention limits and claims procedures.<\/li>\n\n\n\n<li><strong>Train project managers and back\u2011office teams<\/strong>\u00a0on new timelines, documentation requirements and stop\u2011work rights.<\/li>\n\n\n\n<li><strong>Revise internal workflows<\/strong>\u00a0for bidding, change order management and payment processing.<\/li>\n<\/ul>\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>Richard McDonald, Cory Mickels and Jay Ross | Lathrop GPM Two new California statutes taking effect January 1, 2026, will significantly change the way private construction projects are contracted, administered and paid: Both laws require immediate updates to standard contract forms, internal workflows and project management practices. SB 61: The New 5% Retention Cap SB&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/private-construction-projects-california-overhaul\/\">Continue reading <span class=\"screen-reader-text\">California Overhauls Private Sector Construction Payment Practices<\/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":[14],"tags":[9895,88,12,12269],"class_list":["post-905186","post","type-post","status-publish","format-standard","hentry","category-construction-2","tag-advise-consult","tag-california","tag-construction","tag-private-construction-projects","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>California Overhauls Private Sector Construction Payment Practices - Advise &amp; 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