California is introducing a formal dispute-resolution framework for change order and payment disagreements on private construction projects under a new law signed by Gov. Gavin Newsom earlier this fall.
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On October 10, 2025, Newsom approved SB 440, officially titled the Private Works Change Order Fair Payment Act, which sets out defined procedures and deadlines for resolving claims involving change orders, time extensions, and disputed payments on private works of improvement. The law applies to construction contracts entered into on or after January 1, 2026, and is scheduled to sunset on January 1, 2030.
The legislation is designed to mirror California’s existing public-works claims statute, Public Contract Code section 9204, by extending a similar structured claims process to private, nonresidential construction projects.
Under current law, California does not mandate a standardized process for resolving change order disputes on private construction projects. SB 440 fills that gap by establishing specific notice requirements, response timelines, payment obligations, and escalation steps when disputes arise.
The act defines a “claim” as a separate written demand sent by registered or certified mail, with return receipt requested, by a contractor—or by a subcontractor acting through the contractor—seeking a time extension, payment for completed work, or payment of a disputed amount.
Once a claim is received, owners are required to conduct a reasonable review within 30 days and issue a written response identifying which portions are disputed and which are undisputed. Supporting documentation must be provided for disputed items, and any undisputed amounts must be paid within 60 days after the written statement is issued.
If the claim is not fully resolved—or if the owner fails to respond—the claimant may request an informal “meet and confer” conference by registered or certified mail. The owner must schedule the meeting within 30 days of receiving the request.
Following the conference, the owner has 10 business days to issue another written statement identifying remaining disputed and undisputed items. Newly undisputed amounts must again be paid within 60 days.
Any remaining disputed portions identified in the statement “shall be submitted to nonbinding mediation.” The owner and claimant must select a mediator within 10 business days, with mediation costs shared equally. If the parties cannot agree on a mediator within that timeframe, the claimant may select one.
If mediation does not resolve the dispute, the matter proceeds under the contract’s dispute-resolution provisions. If the contract does not specify a process, the parties must proceed “by final judgment or operation of law.”
SB 440 introduces significant financial consequences for late payments. Undisputed amounts that are not paid on time accrue interest at 2% per month from the date due. Disputed amounts later determined to be owed also accrue interest at the same rate from the date they would have otherwise been due.
The act further allows contractors and subcontractors to suspend work without penalty if payment is not made after providing written notice by registered or certified mail, followed by a 10-day notice of intent to stop work issued at least 30 days later.
If an owner fails to respond to a claim entirely, the claim is “deemed” denied, allowing the claimant to proceed directly to the informal conference and mediation steps. If the owner refuses to participate in mediation, the contractor may suspend work.
The law includes specific safeguards for subcontractors who do not have direct contractual relationships with project owners. A subcontractor may request in writing that the contractor submit a claim on its behalf. The contractor must respond within 30 days, either confirming submission or explaining why the claim was not forwarded.
These provisions do not limit or waive a subcontractor’s existing lien rights or stop-work remedies.
SB 440 expressly states that any contractual attempt to waive its protections is void and unenforceable. However, the parties may mutually agree in writing to skip the informal conference and mediation steps and proceed directly to binding arbitration or litigation.
The new law places added procedural responsibilities on owners, contractors, and subcontractors alike. Project participants are encouraged to establish internal claim-review systems, track statutory deadlines carefully, and train staff on SB 440 compliance to avoid interest penalties, payment disputes, or work stoppages once the law takes effect in 2026.
Originally reported by JD Supra.
