06/12/2026
California's construction law landscape changed on January 1, 2026, and owners, contractors, and subcontractors should make sure they're prepared.
Two key laws now apply to many private construction contracts entered into on or after January 1, 2026:
• SB 61 limits retention on most private projects to 5% of the payment and 5% of the total contract value, with limited exceptions. It also requires retention provisions in subcontracts to align with the prime contract and cannot be waived.
• SB 440, the Private Works Change Order Fair Payment Act, creates a structured claims resolution process for private projects and imposes significant consequences for noncompliance. Owners must timely respond to claims, identify disputed and undisputed amounts, and promptly pay undisputed sums. Late payments may accrue interest at 2% per month, and in certain circumstances, contractors may have the statutory right to suspend work if payment obligations or claims procedures are not followed.
These new requirements can have a substantial impact on contract drafting, payment practices, and dispute resolution procedures. Owners, contractors, and subcontractors should review their existing contract forms and internal processes to ensure compliance with the new laws.
Proactive planning today can help avoid costly disputes tomorrow.