News Summary
The California legislature has enacted Senate Bill No. 61, limiting retention amounts on private construction projects to 5%, down from the previous 10%. This law, effective January 1, aims to standardize retention practices, enhance financial stability, and ensure clearer expectations among owners, contractors, and subcontractors. Exceptions apply for contracts signed before the effective date. Industry experts urge stakeholders to prepare for the upcoming changes, which are expected to improve cash flow and prompt payments within the construction sector.
California Caps Retention Amounts on Private Construction Projects
The California legislature has made a significant shift for the construction industry with the enactment of Senate Bill No. 61, signed into law by Governor Newsom on July 14, 2025. This new legislation introduces a limit on retention amounts that owners, contractors, and subcontractors can withhold on private construction projects, aiming to create more equitable financial practices within the sector.
Effective January 1, 2026, the cap on retention for private projects will be set at 5%, down from the typical 10% that parties generally agreed upon in contracts prior to this legislation. This means that, moving forward, retention amounts will be standardized, providing clearer expectations for all parties involved in construction agreements.
Understanding the New Legal Framework
Senate Bill No. 61 introduces California Civil Code Section 8811, which establishes the framework for how retention is handled from the owner to all lower-tier subcontractors. Importantly, the provisions under Section 8811 cannot be waived by contract, marking a shift in California’s public policy regarding retention on private construction projects.
Two particular exceptions exist under this new law. Contracts signed prior to January 1, 2026, do not need to adhere to the 5% retention cap if they cover both the preconstruction and construction phases. Moreover, agreements between owners and direct contractors executed before the new law takes effect can lead to subcontractor agreements made after January 1, 2026, which will then need to comply with Section 8811.
Impact on Industry Practices
With these changes on the horizon, owners and contractors should brace for negotiations surrounding the 5% retention cap during the remaining months of 2025. The construction sector is highly dynamic, and professionals are being urged to prepare for how these new statutory requirements will affect their practices.
The passage of this legislation represents a significant change for the treatment of retention amounts in private construction projects throughout California. Many stakeholders view this move as a critical step towards improving cash flow and financial stability within the industry, which has often faced challenges due to previous practices.
Preparation and Guidance for Stakeholders
Industry experts and legal professionals specializing in construction law will be crucial resources for parties navigating these upcoming changes. Owners and contractors are encouraged to consult with construction practice groups to seek guidance on adapting to the new retention structure and ensuring compliance with the provisions of Section 8811.
Importantly, the introduction of this retention cap aligns with California’s broader efforts to enforce prompt payment requirements for construction-related transactions. The intention is to protect contractors and subcontractors from excessive withholding and to promote a healthier financial ecosystem in the construction sector.
In conclusion, with the implementation of Senate Bill No. 61, the landscape for private construction projects in California is poised for transformation. This law aims to enhance clarity, fairness, and financial stability for all parties involved and reflects a pivotal moment in the state’s ongoing evolution of construction-related regulations.
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Additional Resources
- National Law Review: How to Prepare for 5% Retention in California Construction Contracts
- Wikipedia: Construction Contract
- SF YIMBY: Environmental Review for 3700 California Street
- Google Search: California construction legislation
- Kennedys Law: Structure of the California Fair Plan
- Encyclopedia Britannica: Construction
- LA Times: Key Reservoir Offline During Flames in Palisades
- Google News: California construction news
Author: Construction CA News
CALIFORNIA STAFF WRITER The CALIFORNIA STAFF WRITER represents the experienced team at constructioncanews.com, your go-to source for actionable local news and information in California and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the Rose Parade, Coachella, Comic-Con, and the California State Fair. Our coverage extends to key organizations like the California Building Industry Association and Associated General Contractors of California, plus leading businesses in technology and entertainment that power the local economy such as Apple and Alphabet. As part of the broader network, including constructionnynews.com, constructiontxnews.com, and constructionflnews.com, we provide comprehensive, credible insights into the dynamic landscape across multiple states.
