The clock is ticking for anyone involved in negotiating or administering private construction agreements in California. Beginning January 1, 2026, the Private Works Change Order Fair Payment Act (SB 440) will reshape how change orders and claims arising from them are handled on private construction projects.

Private contracts have long varied widely in how they address payment timing, claim procedures, and dispute resolution. That lack of uniformity has left many contractors, subcontractors, and owners dealing with late payments, inconsistent workflows, and cash-flow stress when projects shift.

SB 440 changes that landscape. The new law imposes strict deadlines, response obligations, and steep interest penalties, up to 24 percent annually, for late payments relating to change order work. Importantly, it also grants contractors lawful stop-work rights if owners fail to pay undisputed amounts.

There are steps owners, developers, and contractors can take now to prepare for these changes. But first, it helps to understand what the law does and how it works.

What the law does

Signed by Governor Gavin Newsom in September 2024 and codified at California Civil Code §§ 8850–8859, SB 440 takes effect on January 1, 2026, and will remain in place until January 1, 2030, unless extended. The statute applies to most private works of improvement but excludes certain small residential projects such as non-mixed use buildings of four stories or fewer built using Type V construction.

The Legislature’s goal in enacting the statute was to address the arguably unfair payment dynamics that arise when change orders are disputed and create corresponding delay in the release of undisputed payments. Public projects already operate under similar rules (e.g., Public Contract Code §§ 20104.50, et seq.); SB 440 will bring that same process to private work, without eliminating contractual flexibility.

How it works

Under the new framework, a “claim” means a written demand by a contractor or a subcontractor submitted to the owner or through the direct contractor for additional compensation due to changes in scope, and/or for time extensions and associated cost impacts. Claims must be submitted with supporting documentation by certified or registered mail within 60 days of discovery of the underlying issue.

Once a claim is received, the owner must respond within 30 days, identifying which portions are approved and which are disputed. Any undisputed amounts must then be paid within 60 days of the written response (without the need for a fully executed change order and corresponding invoice). If payment isn’t made on time, interest begins accruing at two percent per month, which should prove a powerful incentive for owners to act promptly.

If disputes remain, the process continues through a mandatory meet-and-confer conference, followed by a written follow-up statement and, if necessary, mediation. The statute requires these steps to occur within defined timeframes, though parties may agree to additional dispute-resolution methods so long as they don’t delay the statutory process.

Perhaps most notably, if an owner fails to pay undisputed amounts, the contractor may suspend performance on 10 days’ notice without penalty or liability for resulting delays. Any contract clause that attempts to waive these rights is void as against public policy.

What owners and developers should do

First, owners and developers need to assess how they presently manage change order requests and claims. Contract templates should be updated to take into account SB 440’s timelines and procedures. Internal systems should be revisited in the context of the new law to allow logging, review, and response to claims within 30 days and processing of undisputed payments within 60. Failing to meet those time windows could trigger interest penalties that add up quickly.

Project managers and legal teams should receive training now to understand how the new protocols work so compliance doesn’t become a last-minute scramble.

What contractors and subcontractors should do

Contractors and subcontractors should view SB 440 as a vehicle to protect themselves against slow payment and prolonged disputes, assuming they prepare correctly. That begins with documentation. Every change in scope, cost, or schedule impact should be logged and supported by contemporaneous evidence. Claims must be submitted within 60 days of discovery, using certified or registered mail, to invoke the protections of the statute.

Contractors should also review their subcontract documents to ensure the timing and procedural requirements flow down properly. Without that alignment, subcontractor claims may be jeopardized and the contractor may lose the ability to successfully pass the claim through to the owner.

Finally, contractors need to be ready to exercise their new rights. The ability to suspend work after an owner fails to pay undisputed amounts is a significant change in leverage. Exercised carefully, it can encourage prompt resolution and the earlier release of undisputed funds without the need for litigation.

Conclusion

SB 440 marks a significant shift in California’s private construction legal landscape. It sets clear expectations for how and when claims must be made, how owners must respond, and how corresponding disputes must proceed. By standardizing payment procedures and introducing meaningful consequences for delay, it aims to improve cash flow and minimize payment delays that often lead to litigation.

Owners, developers, and contractors who act now will be in the strongest position when the law takes effect at the start of 2026. That includes updating their contracts, training their teams, implementing efficient claim-tracking systems, and consulting with outside legal counsel. Those who wait risk finding themselves on the wrong side of a statute that’s designed to move fast and penalize delay.