2026 Prompt-Pay Statutes for Construction in California

Just when we thought politicians could not agree on anything, Senate Bill 440 and SB 61 passed both the State Assembly and the Senate with unanimous bipartisan support.

These statutes apply to all private construction contracts signed on or after January 1, 2026, except for smaller residential-only projects—specifically, single-family homes and apartment complexes of four stories or less with no mixed-use component.[1]

Civil Code § 8850

Procrastination Now Officially Comes with a Price Tag

General contractors (GCs) can no longer ignore those pesky change orders from their subcontractors—these must now be handled promptly, or the GC will face significant monetary penalties and interest.

While GCs may still ignore their email inboxes (not recommended), a subcontractor’s claim must be sent via certified or registered mail.

Key Deadlines:

• 30 days → GC must provide a written response identifying disputed and undisputed amounts
• 60 days → Undisputed amounts must be paid after the response

Miss those deadlines, and penalties begin:

• Interest accrues at 2% per month (24% annually) on unpaid undisputed amounts
• Mandatory non-binding mediation may be triggered
• Potential exposure to stop work rights/notices

(If you need a mediator on short notice to stop interest from accruing, you know where to find us.)

The statute expressly provides that its terms cannot be waived.

Civil Code § 8811

The 5% Squeeze—Retention Has a New Ceiling

Retention is now capped at:

• 5% maximum, or
• Any lower percentage binding the GC under its agreement with the owner (the flow-down provision). 

Higher retention is only permitted if:

• The subcontractor cannot obtain required bonds, and
• Those bonding requirements were clearly disclosed during bidding

No retroactive surprises. No after-the-fact leverage. If it wasn’t in the bid package, it is not part of the retention conversation.

Important Flow-Down Reminder

These rules apply equally to anyone hiring subcontractors.

If you are a subcontractor retaining lower-tier subcontractors, you are now subject to the same deadlines and exposure.

Attorneys’ fees are now available to prevailing parties in retention disputes.

What This Means for Subcontractors

The new prompt-pay rules shift meaningful leverage back to subcontractors—but only if deadlines are followed carefully. Your paperwork just became more important. 

A subcontractor claim may demand:

• A time extension
• Payment for work performed
• Payment of disputed amounts

Critical Timing:

• Claims must be sent via certified or registered mail (return receipt requested)
• Once sent, the statutory clock begins

Once the GC identifies undisputed amounts:

• Payment must be made within 60 days
• Interest begins accruing at a painful 2% per month—a steep 24% annually if unpaid

Additional consequences may include mediation requirements and potential stop-work rights (which require affirmative steps to invoke).

Takeaway

Timely paperwork is now one of your most powerful tools. Waiting can be expensive.  

What This Means for General Contractors

• You must track and respond to claims within 30 days
• You must pay undisputed amounts within 60 days
• Internal processes need to be tightened immediately

Delays now carry:

• High statutory interest
• Increased dispute escalation
• Pressure to mediate quickly

This is no longer a “wait-and-see” environment.

What This Means for Owners

Owners are not directly subject to all provisions of these statutes, but the downstream impact is significant.

Owners should expect:

• Increased pressure from GCs to resolve disputed amounts quickly
• More rapid escalation of disputes involving change orders
• Potential project disruption if payment issues trigger stop-work rights

In short, delays at the owner level now have amplified consequences across the project chain.

Statutory Text (For Reference)

Civil Code § 8811

Civil Code § 8850

[1] This article is intended as a large overview without the necessary details needed for implementation and is not intended to constitute legal advice It does not address Owners. It should not be relied upon as a substitute for reviewing the applicable statutes or consulting with qualified legal counsel. Individual circumstances vary, and readers should seek advice from an attorney regarding their specific situation.