On Oct. 10, 2025, California enacted the Private Works Change Order Fair Payment Act, codified at Civil Code Section 8850, which establishes a mandatory, multi-step claims and dispute-resolution process for many private construction projects in California. The law applies to private construction contracts entered on or after Jan. 1, 2026, and remains in effect until Jan. 1, 2030, unless extended by statute. Certain residential projects are excluded, generally where the project is not mixed-use and does not exceed four stories.
The new law imposes defined procedures and deadlines for the presentation and resolution of claims on private projects. Disputed amounts later determined to be owed may bear interest at 2% per month from the date those amounts would have been due had they not been disputed. The retroactive interest feature may affect project cash flow and dispute strategy. The new process also aligns private projects with the structured claims-resolution procedures that already apply on public works projects.
Because Civil Code Section 8850 creates a statutory claims-resolution process not yet reflected in commonly used industry forms (including AIA, DBIA, and other standard form agreements), parties should consider potential modifications to their California private works contracts to account for the non-waivable nature of the statute’s mandatory procedures and timeframes.
What Counts as a ‘Claim’ Under Civil Code Section 8850?
Under Civil Code Section 8850, a “claim” is a separate demand by a contractor, or in some circumstances a subcontractor, for one or more of the following: (a) a time extension, including requests for relief from damages or penalties for delay; (b) payment of money or damages arising from work performed; or (c) payment of an amount disputed by the owner. To trigger the statutory process, the claim must be sent by registered or certified mail, return receipt requested, and supported by reasonable documentation.
Timing Requirements Under Civil Code Section 8850
Below is a summary of the deadlines and procedural requirements under Civil Code Section 8850:
- Owner Reviews and Responds to the Contractor’s Claim: The owner must review and respond to the contractor’s claim – identifying disputed and undisputed portions – within 30 days after receiving the claim, unless the parties mutually agree in writing to extend that period.
- Payment of Undisputed Amounts (if any): Undisputed portions of the contractor’s claim must be paid within 60 days after the owner issues its response.
- Informal Settlement Conference: If the contractor disputes all or any portion of the owner’s response, or if the owner fails to respond within the required time, the contractor may demand in writing an informal conference to meet and confer on disputed issues. The owner must schedule a settlement conference within 30 days after receiving that demand.
- Additional Response from the Owner: Within 10 business days after the meet-and-confer, if the claim or any portion remains in dispute, the owner must provide a written statement identifying disputed and undisputed portions. Undisputed amounts must be paid within 60 days after that written statement.
- Mediation: If amounts remain disputed after the settlement conference, the parties must submit the disputed portion to nonbinding mediation, sharing costs equally. The parties must mutually agree to a mediator within 10 business days after the disputed portion has been identified in writing. If the parties cannot agree on a mediator within that timeframe, the contractor selects the mediator. If the owner refuses mediation, the contractor may, after following the required notice procedure, suspend work.
- Litigation or Arbitration: The statute does not provide a deadline for conducting and completing mediation. If mediation fails, disputes are resolved through litigation or arbitration, as specified in the contract.
What Happens if the Owner Fails to Respond to a Claim or Timely Pay Amounts Due?
If the owner fails to respond to a claim within the required time, the claim is deemed denied. Although that deemed-denial mechanism may appear owner-favorable, the statute provides contractors with remedies if the owner does not comply with the statutory process or fails to timely pay amounts due.
If the owner fails to pay amounts due, or if a claim is “deemed denied” due to the owner’s failure to respond, the contractor may suspend performance, provided the contractor first issues written notice to the owner that payment is due or a claim has been deemed denied, and within 30 days after that notice, issues a second notice indicating its intent to stop work within 10 days.
Other Important Provisions
One of the most consequential aspects of Civil Code Section 8850 is its treatment of disputed amounts. Under the statute, amounts that remain disputed, but are later determined through the dispute-resolution process or by final judgment to have been owed, bear interest at 2% per month from the date those amounts would have been due had they not been disputed. In other words, the statute creates potential retroactive interest exposure on disputed sums, not merely interest accruing after liability is established. That feature may have a substantial impact on project cash flow and materially raises the stakes of claim administration and payment decisions on private projects.
The parties cannot preemptively waive the dispute-resolution provisions in Civil Code Section 8850; however, upon receipt of a claim, they may agree to waive the informal settlement conference and mediation and proceed directly to arbitration or litigation. The parties may include their own dispute resolution, change order, and/or claim processes in their contracts, but those provisions cannot conflict with or impair the procedures and timeframes in Civil Code Section 8850.
The statute also requires the contractor to pass through subcontractor claims using the procedures described above where the subcontractor or lower-tier subcontractor lacks privity with the owner, with additional requirements for how such claims are first presented to and evaluated by the contractor. A subcontractor must furnish timely and reasonable supporting documentation and cooperate in the statutory claim-resolution process. Within 30 days after receiving the subcontractor’s written request, the contractor must notify the subcontractor whether the claim was presented to the owner and, if not, provide the reasons for not doing so. While the contractor retains discretion as to whether subcontractor claims are presented to the owner, the contractor cannot settle a subcontractor claim without the subcontractor’s written approval.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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