Starting January 1, 2026, construction litigation in Sacramento and throughout California will be significantly impacted by several emerging trends introduced by SB 440. These changes prioritize contractor cash flow and structured dispute resolution.

Key trends affecting litigation include:

• Reduced Retention Caps: Under Civil Code Section 8811, retention on private works projects is now capped at 5% of the contract price. This replaces the previous industry standard of 10%, fundamentally altering the financial leverage parties hold during disputes.
• Mandatory Mediation: A major procedural trend is the requirement for mandatory mediation before any litigation can be initiated for private works claims. This is intended to resolve payment conflicts through facilitated negotiation before they reach the court system.
• Compressed Response Timelines: The owner’s window to respond to payment claims has been shortened from 30 days to a 15-day mandatory timeline. Failure to meet this deadline can lead to a waiver of certain defenses.
• Increased Financial Penalties: To incentivize prompt payment, the law now imposes a mandatory 2% monthly interest penalty (24% annually) on late payments, which is significantly higher than most previous contractual interest rates.
• Strict Documentation Standards: Litigation will increasingly focus on the quality of documentation for change orders. Under the new framework, claims must include written authorization and detailed cost breakdowns to be enforceable.

• California Construction Law Updates 2026: Key Changes