California rewrote a chunk of its construction rulebook for 2026, and the changes hit cash flow, claims, and licensing all at once. The headline for subcontractors is retention. SB 61 caps retention on most private construction contracts at 5%, adding Civil Code section 8811, and it requires that cap to flow down consistently through every tier of subcontracting.
For years, 10% retention was common on private work, tying up a big slice of a sub’s margin until the very end of a job. Cutting it to 5% and forcing it down the chain frees up working capital for the firms that can least afford to float it.
What the new California construction laws change
SB 440, the Private Works Change Order Fair Payment Act, sets a standard statutory process for submitting and resolving change-order and claim disputes on most large private projects, with defined timelines for extra compensation, time extensions, and delay impacts unless the parties agree otherwise in writing. SB 517 forces general contractors on home-improvement jobs to disclose whether subs will do the work, and to name any sub performing more than half the contract value. And starting July 1, SB 779 raises the minimum fine for unlicensed work to $1,500.
The code side: wildfire and electrification
The 2025 California Building Standards Code took effect January 1 and applies to permits filed on or after that date. Two threads stand out. Scattered wildfire-resistance rules are now consolidated into a standalone Wildland-Urban Interface Code, governing ignition-resistant roofing, vents, decks, and exterior walls in fire-prone zones. And the energy code keeps pushing electrification, expanding electrical scope with bigger service sizing and EV-ready wiring. AB 130 then froze residential code updates until at least 2031, so this is the baseline builders design to for years.
Taken together, the package shifts risk and cash around the contract. Subs keep more of their money sooner, change-order fights follow a clock instead of a stall, and unlicensed operators face a stiffer penalty. California work already carried its own compliance load, seen on projects like the Vincent Thomas Bridge deck replacement. The firms that update their contract templates now avoid learning these rules the hard way on the first dispute.