Starting January 1, 2026, Senate Bill 440 (SB 440) introduces significant updates to payment enforcement and retention rules for private works projects in California. Key requirements include:

• Retention Cap (Civil Code Section 8811): Retention on private works contracts is now capped at 5% of the contract price. This is a reduction from the previous industry standard of 10%. This cap applies to all private works contracts entered into on or after January 1, 2026, though some exceptions apply for unbonded subcontractors.
• Compressed Claims Timeline: Owners now have a mandatory 15-day timeline to respond to payment claims on private works, reduced from the previous 30-day standard. Failure to respond within this window can lead to interest penalties and the potential waiver of defenses.
• Mandatory Interest Penalties: Late payments are subject to a mandatory 2% per month interest penalty. This penalty is designed to compensate contractors for the time value of money and incentivize prompt payments.
• Mandatory Mediation: Before litigation can be initiated for private works claims, parties are now required to participate in mediation. This procedural change compels structured settlement discussions before accessing the court system.
• Documentation Standards: Increased scrutiny is placed on change order documentation. To be enforceable, change orders must be in writing, include detailed cost breakdowns, and have signed authorization before extra work begins.

• California Construction Law Updates 2026: Key Changes