California entered 2026 with sweeping new laws governing private construction projects, and the consequences of non-compliance are significant. Whether you are an owner breaking ground on a new commercial development, a general contractor managing subcontractors, or a subcontractor protecting your payment rights, two statutes signed into law in 2025 fundamentally change how private construction contracts must be structured in California.
Here is what you need to know.
The 5% Retention Cap: Civil Code Section 8811
Recent California legislation may affect the amount of retention that can be withheld on certain private construction contracts, and parties should review their forms carefully before relying on prior practice.
The practical effect of the new rules may reach multiple tiers of the contracting chain, depending on the structure of the project and the contract language.
Key exceptions apply. Residential projects that are not mixed-use and do not exceed four stories are exempt. The cap also does not apply to subcontractor retention where the contractor has provided notice before bidding that a performance and payment bond requirement applies.
Contract provisions that conflict with applicable statutory requirements may be vulnerable to challenge and should be reviewed with counsel.
The New Claims Resolution Process: Civil Code Section 8850
Another recent California enactment appears aimed at standardizing claims-resolution procedures on certain private works projects.
The new statutory framework may require contractors to follow specific notice and claims procedures, and owners may face consequences for failing to respond appropriately or for withholding amounts in a manner inconsistent with the statute. Contractors may also have suspension rights in certain circumstances. Parties should confirm the applicable requirements with counsel before relying on these procedures. Late payments may carry statutory interest or other consequences under the applicable law.
Wildfire-Related Construction Standards
The current building standards framework includes wildfire-related requirements that contractors should treat as an important compliance issue in fire-prone areas.
What This Means for Litigation Defense
Both Section 8811 and Section 8850 were expressly designed to reduce litigation. But they create new procedural exposures along the way. Owners who fail to respond to claims within the statutory timelines, or who withhold impermissible retention amounts, may face interest exposure, work stoppages, and potential litigation, with significantly less contractual flexibility than existed under prior law to manage those risks.
For defense counsel, compliance with these statutes is likely to become a significant focus of litigation: was the statutory process followed? Were claims submitted properly? Was the contractor’s suspension of work authorized? Early analysis of these requirements is advisable in any dispute arising from a 2026 or later private construction contract.
Action Items Now
Contract templates for private California construction projects must be updated immediately. Owners, contractors, and subcontractors should review their standard forms for retention provisions that exceed 5%; missing or non-compliant claims resolution procedures; and conflicting dispute resolution clauses that may now be unenforceable.
Training project management and accounting teams on the new statutory timelines is equally important, these laws are not self-enforcing, and the penalties for non-compliance fall disproportionately on owners.
This article is provided for general informational purposes only and reflects information available as of the publication date. Laws, regulations, agency guidance, and court decisions may change after publication, and those changes may affect the accuracy or completeness of this discussion. This article does not constitute legal advice and does not create an attorney-client relationship.
Gallagher Huie + Blum defends businesses, insurance companies, and public-sector clients in complex litigation matters. To discuss your case, contact us at 628-218-6960 or visit www.teamghb.com