Major Changes Coming to California Private Construction Projects in 2026: What You Need to Know

Published: November 24, 2025

by Jessica A. Robison

California has enacted two significant reforms that will reshape private construction contracts starting January 1, 2026. These changes impact change-order payment procedures and retention limits, creating new compliance obligations for owners, contractors, and subcontractors. Please see below for a breakdown of everything you need to know before SB 440 and SB 61 take effect.

1. SB 440 – Private Works Change Order Fair Payment Act (Civil Code §§ 8850–8851)

For contracts signed on or after January 1, 2026, SB 440 introduces California’s first mandatory statewide process for handling change-order and extra-work disputes on private works projects. Key provisions include:

  • 30-Day Response Requirement: Owners must respond in writing to contractor claims within 30 days.
  • 60-Day Payment Rule: Undisputed amounts must be paid within 60 days or accrue 2% monthly interest.
  • Structured Dispute Resolution: Disputed claims require meet-and-confer and mediation before litigation.
  • Right to Suspend Work: Contractors may stop work if owners fail to comply with timelines or refuse mediation.
  • Subcontractor Protections: Subcontractors can require general contractors to submit claims and approve settlements.
  • Waivers Void: Contract provisions waiving these rights are unenforceable.
  • Sunset Clause: Law repeals January 1, 2030.

Impact: SB 440 strengthens payment protections for contractors and subcontractors while imposing strict compliance obligations and penalties on owners.

2. SB 61 – Retention Cap on Private Works (Civil Code § 8811)

Also effective January 1, 2026, SB 61 limits retention on most private construction projects to 5% a major shift from the traditional 10%. Key provisions include:

  • 5% Maximum Retention: Owners may not withhold more than 5% retention on private works projects.
  • Flow-Down Requirement: General contractors cannot withhold more than the owner withholds.
  • Residential Exception: The cap does not apply to residential projects unless mixed-use and over four stories.
  • Bond Exception: Higher retention allowed if a subcontractor fails to provide a required performance/payment bond.
  • Attorneys’ Fees: Prevailing parties in enforcement actions recover reasonable attorneys’ fees.

Impact: Contractors and subcontractors benefit from improved cash flow, while owners may need to rely more on performance bonds and quality-control measures.

What This Means for You

Both laws require contract updates, revised payment procedures, and compliance planning. Failure to prepare could lead to payment disputes, penalties, and project delays.

We are actively helping clients:

  • Update contracts to reflect new requirements
  • Refine change-order and retention procedures
  • Develop compliance checklists and team training

If you’d like a summary, contract review, or training for your team, please reach out directly to Jessica or any other member of the Weintraub team. We’re here to help.