Beginning on January 1, 2026, Civil Code sections 8850 and 8851 are added to the California Civil Code. These new Civil Code sections, known as the “Private Works Change Order Fair Payment Act,” provide procedures for contractors and subcontractors to follow in dealing with disputed change orders on private works construction projects under contracts entered into on or after January 1, 2026. The law will remain in effect until January 1, 2030. Unless renewed, the law will be automatically repealed as of that date.
The legislation imposes a triple negative brain-twisting limitation, specifying that the new law “shall not apply to the construction of a residential project if the project is not mixed use and does not exceed four stories.” Stated another way, the new law will apply to all private projects, except for purely residential projects of four stories or less. For a more detailed review, the following link will lead to the full text of the new law: https://legiscan.com/CA/text/SB440/2025 .
Generally, under the new law a contractor or subcontractor may make a claim for an extension of time or compensation, generally falling into the category considered change order work. The contractor or subcontractor will include reasonable supporting documentation.
The owner then has 30 days to review the claim, state where it agrees and disagrees, and make payment within 60 days as to those parts of the claim on which it agrees.
As to those parts of the claim remaining in dispute, the parties then “meet and confer” to try to settle the claim. After meeting and conferring, the owner has 10 more days to provide a written statement of where it agrees and disagrees, followed by 60 more days to make payment as to those issues on which it agrees.
Mediation is the next step in the process, with the parties agreeing on a mediator within 10 days or the contractor appointing a mediator if the owner and contractor cannot otherwise agree. If the owner refuses to mediate, the contractor may suspend performance of the work if certain specified procedures are followed, as described below. Claims bear interest at 2% per month.
Claims by first and lower tiered subcontractors are made through the contractor who is to use good faith efforts to present the claim and shall make no settlement of any claim unless the subcontractor approves in writing.
Under subdivision (k) of Civil Code 8850, the contractor and subcontractor have the right to suspend performance of their work on the project, without penalty, if the following two steps are followed:
- The owner is informed by registered or certified mail, return receipt requested, that payment is due pursuant to this section, or where the claim is deemed denied pursuant to subdivision (g) of 8850.
- Thirty days after the notice that payment was due as noted above is sent to the owner, the contractor or subcontractor sends to the owner a 10-day written notice of intent to stop work by registered or certified mail, return receipt requested.
Although the parties may mutually agree to waive, in writing, the meet and confer and mediation provisions and proceed directly to a civil action or arbitration, waiver of the rights granted by this new legislation are otherwise void and contrary to public policy.
Owners, contractors, and subcontractors may agree to reasonable change order, claim, and dispute resolution procedures and requirement in addition to the provisions of this section, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in the new legislation.
While the above is a general description of the new law, there is no substitute for actually reading the new and more detailed Civil Code sections. The new law can be accessed at the link identified earlier in this article. After January 1, 2026, the new law can be accessed at this link: https://leginfo.legislature.ca.gov/faces/codes.xhtml
Necessary Contract Revisions as a Consequence of this New Law:
Many contracts and subcontracts have “dispute resolution” and or “claims” sections. In the author’s view it is not necessary to make wholesale changes to contracts or subcontracts in order to accommodate the new law by restating its provisions within the contract or subcontract itself. The following language, or something similar, added to the contract or subcontract in a suitable location, may suffice:
“For those contracts or subcontracts for the construction of projects other than residential projects that are not mixed-use and do not exceed four stories, the provisions of Civil Code 8850 – 8851, including the stated timeframes and procedures therein, shall apply in substitution of any inconsistent change order or dispute resolution timelines or procedures contained herein.”
Please be sure to read the two new statutes available at the links stated above in detail and make changes to your construction contracts and subcontracts to meet the requirements of the new law before January 1, 2026.
Article written by William L. Porter, Esq. in 2025. Mr. Porter is a principal in Porter Law Group, Inc. in Sacramento, California. He can be reached by phone at (916) 381-7868. Visit the firm’s website at www.porterlaw.com .
