Episode 151 of Concrete Numbers · 6 min watch
On private California jobs, an owner generally must pay an undisputed progress payment within 30 days of a proper payment demand and release retention within 45 days after completion, with a 2% per month penalty on amounts wrongfully withheld. For private contracts signed on or after January 1, 2026, two new laws add a 5% retention cap (SB 61) and a formal claim process with 2% monthly interest and a stop-work right (SB 440).
What changed on January 1, 2026
SB 61 (Chapter 49, Statutes of 2025) added Civil Code §8811, which caps retention on private works. SB 440, the Private Works Change Order Fair Payment Act (Chapter 583, Statutes of 2025), added Civil Code §8850 and following, a mandatory claim process for private jobs.
Both apply only to contracts entered into on or after January 1, 2026, so a job signed in 2025 runs on its original terms. Both exclude residential projects that are not mixed-use and do not exceed four stories. SB 440 is scheduled to sunset on January 1, 2030 unless extended.
The 5% retention cap on private jobs
Under §8811, retention cannot exceed 5% of any progress payment or 5% of the contract price in total. The cap flows down: a subcontract cannot hold back a higher percentage than the owner’s contract allows. The prevailing party in an enforcement suit recovers reasonable attorney’s fees.
The cap does not apply to a subcontractor that was told in writing at or before bidding that performance and payment bonds were required and then fails to furnish them. Public works have had a similar 5% cap since 2012 under Public Contract Code §7201.
Hypothetical: on a $1,000,000 private contract, 10% retention ties up $100,000 until closeout; 5% ties up $50,000. That difference is cash you would otherwise be lending the owner, one reason profit and cash drift apart.
When owners and GCs must pay
| Payment | Deadline | Code |
|---|---|---|
| Owner to direct contractor, progress (private) | 30 days after payment demand, unless otherwise agreed in writing | Civil Code §8800 |
| Owner to direct contractor, retention (private) | 45 days after completion | Civil Code §8812 |
| Direct contractor to sub, retention (private) | 10 days after receipt | Civil Code §8814 |
| Contractor to sub, progress (private and public) | 7 days after receipt, unless otherwise agreed in writing | Bus. & Prof. Code §7108.5 |
| Public entity to prime, retention | 60 days after completion | Pub. Contract Code §7107 |
| Prime to sub, retention (public) | 7 days after receipt | Pub. Contract Code §7107 |
Each of these carries a 2% per month penalty on amounts wrongfully withheld (§§8800 and 8818, §7108.5, §7107). Local agencies that miss the 30-day deadline on a proper progress payment request owe interest under Public Contract Code §20104.50. In a good-faith dispute, the payer may generally withhold up to 150% of the disputed amount. If you bid public work through the portals on our California procurement page, the public rows apply.
SB 440: the claim process and 2% monthly interest
SB 440 covers claims: a written demand for more time, payment for work, or payment of a disputed amount, including change orders. Send the claim by registered or certified mail, return receipt requested. The owner has 30 days to respond in writing, separating disputed from undisputed amounts, then 60 days to pay the undisputed portion. No response counts as a denial.
Remaining disputes go to an informal conference and nonbinding mediation unless both sides agree in writing to skip them. Late undisputed amounts accrue 2% per month, and disputed amounts later found owed carry the same rate from their original due date. Contract waivers of the process are void, and the deadlines force change-order fights to a decision.
Stopping work for nonpayment
A statutory stop-work route existed before 2026. Under Civil Code §§8830–8848, a direct contractor unpaid 35 days after payment is due, with no dispute about its performance, may post a notice of intent at least five days ahead, then give the owner a stop work notice demanding payment within 10 days. Copies go to its direct subcontractors.
SB 440 adds a second route: a written nonpayment notice by registered or certified mail, then, if still unpaid after 30 days, a 10-day notice of intent to stop work. Commentators read those periods differently, so have a construction attorney approve your notices before you leave a job. A defective stoppage can make you the party in breach. Still, funding an unpaid job is how busy contractors end up broke.
Retention is a receivable: track it like one
Keep billed but uncollected retention in its own retainage receivable account by job, one of the records every contractor should track, so you can see how much cash sits with each owner.
On a WIP schedule, billings to date are generally shown gross of retention, so retention does not create over- or underbilling on its own. A job can look healthy on your WIP report and still drain your account when retention stacks on top of underbilling. Read the WIP schedule your surety sees next to a retention aging report.
A deadline system for your office
- Record each contract’s signing date so you know whether §8811 and SB 440 apply.
- Calendar every clock above in your project management software.
- Pay your own subcontractors on time; §7108.5 penalties run against you too.
- Send demands and claims by registered or certified mail, and keep the receipts with the same record retention discipline you use for tax files.
- Review overdue retention monthly as a leading indicator.
- Have a construction attorney update your 2026 contract templates.
Retention aging and WIP reporting are part of our accounting services for contractors.
Frequently asked questions
Does the 5% retention cap apply to my existing contracts?
No. Civil Code §8811 applies to private contracts entered into on or after January 1, 2026, and excludes residential projects that are not mixed-use and do not exceed four stories.
Is 2% per month interest new in California?
Not entirely. Civil Code §§8800 and 8818 already imposed a 2% monthly penalty on wrongfully withheld progress payments and retention. SB 440 extends 2% monthly interest to claims under its process on contracts signed in 2026 or later.
Can I stop work if the owner stops paying?
Possibly, under Civil Code §§8830–8848 or the SB 440 process, but both require exact notices and timing. Talk to a construction attorney before you stop.
How should retention show up in my books?
As a separate retainage receivable by job, reviewed alongside your WIP schedule. Our episode on underbilling and cash flow covers the related cash gap.
Is your retention tracked by job?
We set up retainage receivable tracking, retention aging and WIP reporting so California contractors can see exactly what owners owe and when it is due.
Verified against California Civil Code §§8800, 8811, 8812, 8814, 8818 and 8830–8848, Business and Professions Code §7108.5, Public Contract Code §§7107, 7201 and 20104.50, the chaptered SB 61 and SB 440 (2025) records, and law-firm summaries of SB 440 from Allen Matkins, Cox Castle, Stoel Rives and Lathrop GPM. General information, not advice for your situation.