Effective January 1, 2026, California implemented significant changes to construction law, primarily through Senate Bill 440 (SB 440). These updates fundamentally restructure payment practices and dispute resolution for private works projects.

Key changes include:

• Private Works Retention Cap (Civil Code Section 8811): Retention proceeds on private works contracts are now capped at 5% of the contract price. This is a reduction from the previous industry standard of 10%. This cap applies to the first $1,000,000 of a contract, with potential reductions for amounts above that threshold.
• Compressed Owner Response Timeline: Owners must now respond to payment claims within 15 days, reduced from the previous 30-day standard. Failure to respond can result in the waiver of defenses and statutory penalties.
• Increased Interest Penalties: If an owner fails to make timely payments, a mandatory 2% monthly interest penalty is imposed on the overdue amount.
• Mandatory Mediation: Parties are now required to engage in structured mediation before they can initiate litigation for private works claims.
• Documentation Requirements: The law mandates strict documentation for change orders, requiring written approval and detailed cost breakdowns to preserve payment rights.

These laws apply to private works contracts entered into on or after January 1, 2026, and in some cases, may override contrary provisions in existing contracts.

• California Construction Law Updates 2026: Key Changes