An act to add Section 8811 to the Civil Code, relating to works of improvement.
Summary
SB 61 adds Section 8811 to the Civil Code to regulate retention payments on private works of improvement contracts entered into on or after January 1, 2026. The bill generally caps retention withheld at each tier of the contracting chain—owner to direct contractor, direct contractor to subcontractor, and subcontractor to lower-tier subcontractor—at 5% of the payment, and also limits total retention proceeds to 5% of the contract price. It further requires that, in subcontracting relationships, the retention percentage cannot exceed the percentage in the owner-direct contractor contract.
The bill includes two main exceptions to the 5% cap: it does not apply where a contractor gives advance written notice that a faithful performance and payment bond will be required and the subcontractor fails to provide the bond, and it does not apply on certain residential projects that are not mixed-use and do not exceed four stories. SB 61 also provides that a prevailing party in any enforcement action is entitled to reasonable attorneys’ fees, which strengthens private enforcement of the new retention rules.
Impact
SB 61 changes California law governing private construction contracts by imposing a statutory ceiling on retention withholding and by standardizing how retention may be passed through among owners, contractors, and subcontractors. It adds a new Civil Code section that will apply prospectively to contracts entered into on or after January 1, 2026, and it creates enforceable rights for contractors and subcontractors to challenge excessive retention. The bill also shifts litigation incentives by mandating attorneys’ fees for the prevailing party, which may encourage compliance and disputes over improper withholding.
Sentiment
The bill appears to have been broadly supported and noncontroversial in the legislative process. It advanced through committee and floor votes unanimously or near-unanimously, including multiple consent calendar actions with no recorded opposition. The absence of committee transcript discussion suggests little public controversy or debate in the available record, and the voting history indicates strong bipartisan or unanimous agreement.
Contention
The main policy issue raised by the bill’s structure is the balance between protecting contractors and subcontractors from excessive cash withholding and preserving flexibility for owners and prime contractors to manage project risk. The exceptions for bonded subcontractors and for certain residential projects indicate concern from the construction industry about preserving existing risk-management tools and avoiding overregulation in smaller residential work. The attorneys’ fees provision may also be a point of concern for parties who fear increased litigation exposure, though the recorded votes do not show active opposition.
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