On October 10, 2025, Governor Newsom signed SB 440, titled the Private Works Change Order Fair Payment Act. The new law introduces a process and deadlines for handling change order, time extension and payment disputes on private-works construction projects. SB 440 will apply to contracts entered into on or after January 1, 2026, and will remain in effect until January 1, 2030.
What Is Changing?
Construction projects often undergo changes during the construction process that may result in additional costs for labor and materials. Currently, there are no specific processes mandated for resolving change orders on private works of improvement in California. On January 1, 2017, California implemented Public Contract Code section 9204 to provide a claims resolution process for contractors engaged in public works projects, and SB 440 seeks to implement a similar process for private, nonresidential construction projects.
Applicability and Scope
SB 440 does not apply to purely residential projects (i.e., not mixed-use) that are four stories or less in height. The law also does not apply to contracts under which the owner is a public entity.
Procedure and Obligations
The Act defines a “claim” as a separate written demand, sent by registered or certified mail with return receipt, by a contractor—or a subcontractor acting through the contractor—seeking a time extension, payment for work performed, or payment of a disputed amount. Upon receipt of a claim, the owner must conduct a reasonable review within 30 days and provide the claimant a written statement identifying which portions of the claim are disputed and which are undisputed. The owner must provide documentation supporting the disputed amount. The owner must pay any undisputed amount within 60 days after issuing the written statement.
If all or part of the claim remains unresolved—or if the owner fails to respond—the claimant may request, by registered or certified mail, an informal “meet and confer” conference. The owner must schedule this meeting to occur within 30 days of receipt of the request. Within 10 business days of the conference, the owner must again provide a written statement identifying any remaining disputed or undisputed items, and the newly undisputed portions must be paid within 60 days. Any unresolved portions then proceed to non-binding mediation, with the costs shared equally.
The 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 after the owners’ post-conference statement identifying the remaining disputed portion of the claim, and both parties are to share the costs of the mediation equally. If the parties cannot agree on a mediator within 10 days, the claimant may select the mediator.
Should mediation fail, the dispute moves forward under the contract’s stated dispute-resolution mechanism. If no such procedures exist, the parties are to proceed “by final judgment or operation of law.”
Statutory Penalties and Rights to Suspend Work
Undisputed amounts that are not timely paid accrue interest at 2% per month from the date due. Disputed amounts later determined to be owed also accrue interest 2% per month from the date they would have otherwise been due, had they not been previously disputed.
The act also affords contractors and subcontractors the right to suspend work without penalty if payment is not made after (i) such claimant sends a written notice by registered or certified mail that payment is due and (ii) subsequently a 10-day notice of intent to stop work 30 days later.
Further, if an owner fails to respond to a claim, the claim is “deemed” denied, and the claimant may proceed with the next steps, including the informal conference, and nonbinding mediation. If the owner refuses mediation, the contractor can suspend work.
Subcontractor Claims
SB 440 provides specific protections for subcontractors lacking direct contractual privity with the owner. A subcontractor may request in writing that a contractor submit a claim to the owner. The contractor must notify the subcontractor within 30 days confirming whether the claim has been submitted and, if not, explain why. Importantly, these provisions do not limit a subcontractor’s lien or stop-work rights.
Waiver Prohibition
The Act expressly states that any contractual waiver of its protections is void and unenforceable. However, the parties may mutually agree in writing to bypass the informal conference and mediation steps and proceed directly to binding arbitration or litigation.
Action Items for Owners and Contractors
SB 440 imposes new procedural compliance burdens on owners, contractors and subcontractors. Owners and contractors should implement internal review protocols to ensure timely evaluation of claims and prompt payment of undisputed sums. Subcontractors should understand their new right to have claims presented through the contractor and ensure documentation and notice are handled properly and addressed in subcontracts. All parties should consider establishing claim-tracking systems and training staff on SB 440 compliance procedures to avoid inadvertent interest penalties or project disruptions.
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