Are Owners and Contractors Ready for California’s New Private Works Claims Process?

2026 has been a year of many changes to private works construction contracts. In addition to changes to the amount of retention that private owners can withhold (reducing retention from 10% to 5% on most private works projects) there were also substantial changes to the claims and dispute resolution procedures for contracts entered into after January 1, 2026. As time goes by and claims start to accrue on 2026 projects, disputes are bound to start arising which will put these new procedures directly at issue.

California Senate Bill 440, the Private Works Change Order Fair Payment Act (the ACT), codified in California Civil Code (“CC”) section 8850, created a mandatory, non-waivable, structured claim resolution process for private construction contracts in California signed on or after January 1, 2026. It established strict deadlines for responding to payment disputes, requires interest payments on late amounts, and allows contractors to suspend work for nonpayment. Importantly, the Act is non-waivable: any attempted waiver is void and contrary to public policy.  Therefore, parties should not expect that they can simply contract around these requirements. Like California’s law establishing 5% retention on most private works projects, the Act similarly excludes, and does not apply to, residential projects of four stories or less, so long as they are also not mixed-use projects.

The statute operates independently of contractual claims procedures and, in most instances, must be followed before the parties may proceed to arbitration or litigation, or other dispute resolution processes available under the contract of applicable law. As discussed below, failure to comply carries financial consequences and, in some cases, allows contractors to suspend work and to attach prompt payment penalties to nonpayment. This set of new rules overlays and potentially takes precedence over contract terms. Both owners and contractors need to be aware of these deadlines and processes to avoid facing penalties, losing rights, or forfeiting available remedies.

Contractors Must Initiate Claims with Specified Service

The Act defines a “Claim” as a contractor demand for (i) a time extension, (ii) additional compensation, or (iii) payment of disputed amounts.  Contractors’ claims must be submitted to the owner in writing and served specifically by registered or certified mail, return receipt requested.  Contractors will need to make sure that they adhere to both their contract’s notice provisions as well as these new laws.

The statute also addresses pass-through claims from subcontractors through the same process if a subcontractor requests that a contractor present a claim to an owner.  Contractors must act in good faith, include supporting documentation, and may not settle the claim without the subcontractor’s consent.  Subcontractors must be active participants in the dispute resolution process by providing the required information and supporting documentation to the contractor and participating in the informal conference and mediation process.  The contractor must notify the subcontractor in writing within 30 days of receiving the subcontractor’s request regarding whether the contractor submitted the claim to the owner.  The statute appears to permit a contractor to decline to present a subcontractor claim to an owner, provided the contractor notifies the subcontractor of its reasons within 30 days and acts in “good faith” as required by the statute.  Disputes are likely to arise as to what “good faith” means in this new statute.

Owners: Strict Response and Payment Deadlines Come with Penalties

Once a claim is received, the owner must issue a written response within 30 days that identifies disputed and undisputed amounts.  The owner’s deadline to respond to the claim may be extended by mutual agreement of the owner and contractor.  Payment must be made by the owner of all undisputed amounts within 60 days of that written response.

Importantly, failure of the owner to pay undisputed amounts within the strict deadlines established by this new statute results in prompt payment penalties of 2% interest per month.  Further, disputed amounts which are later found to be owed to the contractor, additionally bear such prompt payment penalties at 2% interest per month, beginning from the date on which those amounts would have been due had they not been disputed.  Therefore, the statute provides steep penalties for owners who ignore contractor claims or who miss these deadlines.

Owners Must Meet-and-Confer at Contractor’s Request

After the owner’s written response or if the owner fails to respond, the contractor may request an informal meet-and-confer conference, which the owner must schedule within 30 days following receipt of the claimant’s request sent by registered or certified mail, return receipt requested.  Within 10 business days following the “conclusion” of the conference (what is deemed the conclusion could itself be in dispute), the owner must issue a further written statement clarifying disputed and undisputed issues and pay any newly undisputed amounts.  Similar to the initial response to the claim, payment of any undisputed amounts must be made by the owner within 60 days following the owner’s written statement.

If an owner fails to respond to the claim, the claim is deemed denied , and the contractor may pursue other remedies available under the statute or applicable law.  In addition,  if an owner fails to respond to either the claim or a meet-and-confer request, the contractor may initiate the work-suspension procedure, discussed below.

Mandatory Nonbinding Mediation

If disputes remain, the statute states that the remaining disputed amounts “shall be submitted to nonbinding mediation” with both parties sharing costs equally.  The parties have 10 business days to agree on a mediator.  Interestingly, if the parties cannot agree to a mediator within the allotted time, the contractor is entitled to select the mediator.  This presents a trap for unwary owners who may allow too much time to go by, only to find out that they have now lost the ability to have a say in selection of the mediator. If the owner refuses to mediate, the contractor may pursue the Act’s remedies, including suspension of the work. Only after mediation fails may the parties proceed to arbitration or litigation as otherwise permitted by contract or law.

However, both the informal conference and the nonbinding mediation can be waived by the parties if mutually agreed.

California Civil Code § 8850 Authorizes Work Suspension for Noncompliance

Both contractors and subcontractors are afforded the right to stop work so long as they follow the statutory steps. If an owner fails to pay amounts due under the Act or otherwise fails to comply with its requirements, including participating in an informal conference or mediation, the contractor must first provide written notice to the owner by registered or certified mail, return receipt requested.  If the contractor is still unpaid 30 days after such notice is sent to the owner, the contractor can send a further 10-day written notice of its intent to stop work, which must also be sent by registered or certified mail, return receipt requested.  The 30-day notice which starts this clock is not a notice of claim but a separate notice that payment is overdue (such as in the event that the owner has identified undisputed amounts and still not paid them as required in the statute), or that the owner has failed to respond or meet the requirements of the statute. The statute is unclear whether the 30 days is a cure period and whether the owner can revive the statutory claims process within that 30-day notice period.

Practical Impact

The Act standardizes how private construction claims are presented, evaluated, and escalated. Importantly, these remedies cannot be waived by agreement or contract, meaning that neither owners nor contractors may insert overriding language into any contract to try to avoid these impacts.

Owners and developers should revise internal claims-handling procedures and train project teams on compliance. For owners, it will be key to respond to all claims that contractors bring, and to be realistic and objective in what amounts should be paid early on in the process, to ensure that they are not subject to work stoppage or avoidable late payment penalties. For contractors, it will be important to make sure they are bringing all claims on time and adhering to the strict timing and service requirements so that they can retain all available remedies and avoid any further costly delays. It is prudent for both owners and contractors to incorporate these provisions into their contracts in order to prevent misunderstandings and to facilitate adherence to the terms by the project teams.

If owners and contractors are engaged in this claims process, legal counsel is recommended. The penalties of non-compliance are stiff and the complications between the statute and contract are likely to be complex. Further, each and every response in this process may become evidence in future legal proceedings. Carefully consider the prudence of involving legal counsel in crafting appropriate language and documentation.

Stoel Rives LLP has developed a timeline to assist parties in recognizing, calendaring, and responding to the various response deadlines under the Private Works Change Order Fair Payment Act.