Ep. 593 2026 Legal Updates Reshaping California’s Private Construction Sector
Rancho Mesa's Alyssa Burley and Account Executive of the Surety Department Josh Hill talk about two senate bills that are reshaping California’s private construction sector.
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Director/Host: Alyssa Burley
Producer/Editor: Megan Lockhart
Music: "Home" by JHS Pedals, “Breaking News Intro” by nem0production
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Transcript
Alyssa Burley: You’re listening to Rancho Mesa’s StudioOne™ podcast, where each week we break down complex insurance and safety topics to help your business thrive.
I’m your host, Alyssa Burley, and I’m joined by Josh Hill, Account Executive in the Surety Group with Rancho Mesa. Today, we’re going to talk about two senate bills that are reshaping California’s private construction sector.
Josh, welcome to the show.
Josh Hill: Good morning, happy to be here.
AB: Well we’re happy to have you.
Now, you recently wrote an article that highlights two California Senate Bills that are having an impact on the construction industry: SB 61 that addresses retention payments for private works and SB 440, also known as the Private Works Change Order Fair Payment Act, that’s a mouthful. So, let’s start with SB 61 and retention. What’s changing under this bill, and why is this new cap such a big deal for contractors and subcontractors working on private projects?
JH: Yeah, so this is a nice change for people working in the private sector. For years, 10% has kind of been like the accepted threshold. You got a 10% retention to hold on that. And what that does is that kind of holds up capital and cash flow for the contractor. Because usually that 10% retention, when they get it at the end, that's their profit, for the most part.
So now by allowing them to get 5% of that up front it helps keep capital on the books uh it gives them a little bit of flexibility to chase some additional work if they want to build up the pipeline a little bit more in that backlog because they have the capital to go do that whereas before it was kind of held up until the end of that project. So it's really nice to kind of free up some flexibility for the contractor lets them get the capital up front and they can chase additional projects because of that
AB: Okay. Alright, so let’s switch gears a little bit let’s talk about change orders. So change orders have always been a pain point in the construction industry. I know, my husband is in the industry. Will you walk us through what SB 440 does differently and how those new deadlines are meant to speed up approvals and payments?
JH: Yeah. So change orders has always been kind of a big bugaboo in the construction industry. As a banker, I saw it with my contractors. I mean, sometimes they get held out for a year, two years and you know on large projects this is a sizable amount of cash that they're expecting to get paid for that they're disputing. And so what 440 really attempts to do is kind of put in firm deadlines on how this works so at the onset through certified mail or registered mail they got to make a claim, the claim goes in, there's a 30-day window for the owner to respond. Within the 30 days after that, they have 60 days to get back to the claim to talk about, okay, this is what we're going to pay on, this is approved and disputed.
So there's kind of that transition period, but it does set forward kind of a guideline of, okay, this is how we're going to resolve it. This is the process to do that. So no more lingering issues for 12 months, 18 months on these change orders that really drag out a project. And that's another big part of it too, right? It's supposed to keep the project on track. So a lot of times these things can get, you know, sidelined. But within 440, you know, if the owner of the project doesn't comply with the 30 and 60 day guidelines that are in there, the subcontract does have the right to suspend work. So they could potentially do that.
Now, of course, nobody wants to do that, right? Because nobody's doing the work and not getting paid. The project is off track. And certainly that's just not good for anybody. So really what 440 is trying to do is establish a firm guideline on, hey, this is the timeline in which things need to be submitted for claims. This is how you dispute it. This is how long you have to resolve that dispute and just keep things moving forward.
AB: Alright that sounds great. So, are there any projects or situations where these new rules don’t apply, and what should contractors be paying close attention to when they’re negotiating or signing new contracts in 2026?
JH: Yeah, so there's really two scenarios where this new change doesn't really take place, and that is on purely residential projects. So we're not talking about like a lot of multi-families have like a coffee shop down below or a laundromat built in. We're talking purely residential properties, four stories or less. It wouldn't apply to that. And then also whenever a higher tier contractor is putting the opportunity out for bidding, they need to establish written notice that the people bidding on the project need to provide payment performance bonds. So it needs to be established up front.
If the person who wins the bid doesn't provide those bonds, then they may not get the 5% retention. So, yeah, so those are the two times that may not really apply. So it's just really important that, you know, when you're working for a general contractor, always obtain the prime contract. A lot of subs will sometimes go about the work and they won't obtain the prime contract. So they don't really know what the flow down language is. And that is so important and key for them to do is make sure that when you get the prime contract, all the new SB 61 or 440 language flows from top to bottom all the way down. Sometimes the subs will have like a master contract in place that they had before January 1st of ‘26. Those no longer necessarily apply. So they need to make sure that any revisions that are made for new work starting in 2026, that those revisions are in there and all the flow down language from top to bottom is in there.
AB: So always read the contract.
JH: Always read your contracts.
AB: Yes, absolutely. All right, Josh, if listeners have questions about their surety program, what’s the best way to get in touch with you?
JH: Yep. So email is the best way to catch me at all times jhill@ranchomesa.com. I’ll respond to your morning and night, and happy to help anyway that I can.
AB: All right, well, Josh, thanks for joining me in StudioOne™.
JH: Appreciate it, thank you.
AB: Thanks for tuning in to our latest episode produced by StudioOne™. If you enjoyed what you heard, please share this episode and subscribe. For more insights like this, visit us at RanchoMesa.com and subscribe to our weekly newsletter.