Is Your Private Project Ready for California's New Change Order Law?
The Clock is Ticking: SB 440 Takes Effect January 1, 2026
The new year brings a mandatory shakeup to California’s private construction industry. Effective January 1, 2026, Senate Bill 440 — the Private Works Change Order Fair Payment Act (“SB 440”) — will govern how contractors and owners resolve disputes over change orders and time extensions. Codified as new Civil Code §8850, this law imposes strict, non-negotiable timelines backed by severe financial penalties. For all private contracts signed on or after this date, the old way of handling delayed change order reviews is over.
What Claims Are Covered? Know the Scope
It is critical to understand that SB 440 does not apply to every dispute on your project. This law is narrowly focused on providing mandatory protections only for claims related to changes in the scope of work.
A “claim” that triggers the §8850 process is a formal, documented demand for one or more of the following:
- A Time Extension: Including relief from owner-assessed delay damages.
- Payment of Additional Compensation: For approved changes to the scope of work.
- Payment of a Disputed Amount: A specific payment that the owner has challenged or withheld.
If your claim falls into one of these categories, the following mandatory deadlines apply.
The Two Non-Negotiable Deadlines
| The Mandate | The Deadline | The Consequence of Failure |
|---|---|---|
| Owner’s Claim Review & Response | 30 days after receipt of the documented claim. | The claim is deemed denied, automatically escalating the dispute to mandatory non-binding mediation. |
| Payment of Undisputed Amounts | 60 days after the owner issues the written response identifying the undisputed portion. | Interest accrues on the unpaid amount at a penalty rate of 2% per month (24% annual), and the contractor gains the right to issue a stop-work notice. |
The Critical Nuance: When Can a Deadline Be Extended?
The law prohibits parties from waiving these protective timelines in the initial contract. However, the legislature included a crucial provision for practical flexibility:
- Civil Code §8850(d)(3) explicitly allows the owner and contractor to mutually agree, in writing, to extend the 30-day Claim Review Period for a specific, complex claim after that claim has been submitted.
This is a key tool for project health: it allows owners and contractors to collaborate on reviewing complicated claims without tripping the deemed denial penalty, provided they formalize the extension.
Prepare Your Business for 2026
This law rewards preparation and punishes delay. All owners, developers, contractors, and subcontractors must take immediate action to align their procedures with §8850.
| For All Stakeholders | For Owners & Developers | For Contractors & Subs |
|---|---|---|
| Revise All Contracts: Update standard forms to clearly reference §8850 and its required timelines. | Implement a 30-Day Alert System: Create an internal workflow to immediately log and route certified claims, ensuring the 30-day response window is not missed. | Standardize Claims: Ensure all claims are sent by certified or registered mail and include all necessary documentation (reason, method of calculation) to trigger the owner’s obligation. |
| Formalize the Extension Process: Adopt a written procedure for mutually agreeing to the §8850(d)(3) extension for the review period. | Budget for Rapid Payment: Adjust cash flow planning to ensure funds are available to meet the non-extendable 60-day payment deadline for all undisputed sums. | Leverage the Penalties: Use the threat of the 2% monthly interest and the stop-work authority to ensure timely and fair treatment for extra work performed. |
Conclusion: A New Era for Private Construction
SB 440 marks a turning point in California private construction contracts and aligns with previous changes applicable to public works by implementing a process for handling change-order claims that rewards responsiveness and collaboration. Awareness, proactive contract revision, and process and claim training are essential to avoid the applicability of step penalties for delayed payment.
If you have any questions, Foley is here to help. Reach out to the author of this article or your Foley attorney with any relevant concerns.
