California is often at the forefront of construction legislation. Owners and contractors accustomed to more flexible private contract terms will find a new piece of California legislation particularly disruptive. California Civil Code Section 8850, enacted through Senate Bill 440 (the Private Works Change Order Fair Payment Act), represents a significant shift in how private construction project disputes are handled in California and imposes significant cost risks to owners for withholding payments to contractors and subcontractors. Covering contracts entered into on or after Jan. 1, 2026, this legislation imposes mandatory, non-waivable procedures for claims resolution, payment timelines and dispute escalation on most private works projects, and assesses a prejudgment interest penalty of 2% per month on all improperly withheld payments.
This new statute mirrors processes long required for public works projects in California (e.g., under Public Contract Code Section 9204) but extends similar protections to contractors most private projects to suspend work and obtain payment for undisputed amounts owed.
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