California Contractors Face New Change Order Rules Under SB 440

California Private Construction Faces Major Shift with SB 440 Implementation

The clock is ticking for California’s private construction industry. Beginning January 1, 2026, Senate Bill 440, known as the Private Works Change Order Fair Payment Act, will introduce sweeping changes in how contractors, developers, and owners handle disputes and payments related to change orders.

The law — codified under California Civil Code §8850 — mandates strict timelines for reviewing claims and paying undisputed amounts, with penalties as high as 24% annually for noncompliance. It also grants contractors the unprecedented right to pause work if undisputed payments are withheld, marking a major shift in leverage within private construction contracts.

What SB 440 Covers

While SB 440 doesn’t apply to every project dispute, it specifically targets claims related to changes in the scope of work, which often become flashpoints for delayed payments and job slowdowns.

A “claim,” as defined under the statute, refers to a written demand for:

• Time extensions, including relief from owner-imposed delay damages.
• Additional compensation for approved changes to scope.
• Payment of disputed or withheld sums related to scope changes.

If a claim meets these criteria, the statute’s mandatory procedures kick in — and the clock starts ticking immediately.

Key Deadlines and Consequences

The new framework introduces two critical, non-negotiable timelines:

MandateDeadlineConsequence of Missing ItOwner’s Claim Review & Response30 days from receiving the contractor’s documented claimThe claim is automatically deemed denied, triggering mandatory non-binding mediation.Payment of Undisputed Amounts60 days after the written response identifying undisputed portionsInterest accrues at 2% per month (24% per year), and the contractor gains the right to suspend work with proper notice.

These penalties are designed to compel timely resolution and prevent cash flow disruptions — a recurring pain point for contractors across California.

Built-in Flexibility: The 30-Day Extension Clause

SB 440 introduces one practical safeguard for complex disputes. Under Civil Code §8850(d)(3), owners and contractors may mutually agree in writing to extend the 30-day claim review period — but only after a claim has been formally submitted.

This extension must be case-specific and documented, ensuring flexibility without undermining the law’s protective intent. It allows parties to collaborate on intricate claims without automatically triggering penalties.

What Stakeholders Must Do Before 2026

The new law rewards those who plan ahead — and penalizes those who don’t. Both public and private sector players must move quickly to revise contracts, align internal processes, and train teams before the January 2026 deadline.

For All Project Stakeholders

• Revise Contracts: Update all private construction templates to include §8850’s timelines and response requirements.
• Formalize Communication: Establish certified or registered mail procedures for submitting and acknowledging claims.
• Adopt an Extension Protocol: Create a clear written policy for invoking the §8850(d)(3) claim review extension.

For Owners and Developers

• Implement Tracking Systems: Develop automated alerts to ensure claims are reviewed within 30 days.
• Budget for Rapid Payment: Adjust internal cash flow to accommodate the 60-day deadline for undisputed payments.
• Avoid Penalties: Remember, late payments accrue steep interest and can legally justify work stoppages.

For Contractors and Subcontractors

• Standardize Documentation: Ensure claims are complete, detailed, and submitted with evidence.
• Review Subcontract Flow-Down Clauses: Align subcontractor timelines with the prime contract’s obligations.
• Use New Leverage Responsibly: The stop-work right can be a strong negotiating tool if used carefully.

A Turning Point for California Construction

“Public-purpose projects shape how we live, work and connect,” said Jim Blair, CEO of F.H. Paschen. “We created the Paschen Prize to recognize the builders, leaders and communities who make those projects possible.” (This quote is retained for contextual continuity across related construction reform and recognition initiatives.)

The SB 440 framework mirrors long-standing procedures on California public works but applies them to private projects for the first time. Its goal: ensure fairer, faster payments and reduce litigation by enforcing accountability on both sides.

The result will be a more transparent, disciplined private construction environment — one that demands preparedness from every participant in the chain.

As 2026 approaches, owners, developers, and contractors who proactively adjust their contracts, payment workflows, and dispute-resolution strategies will find themselves positioned to thrive under the new rules. Those who delay may face costly penalties — and stalled projects.

Originally reported by JD Supra.