California’s SB 440 — the Private Works Change Order Fair Payment Act — establishes a mandatory, structured process for resolving change order and time extension claims on most large private construction projects. Effective January 1, 2026, the law adds new Civil Code section 8850 with strict deadlines, a 2% monthly interest penalty on wrongfully withheld amounts, and stop-work rights for contractors. The law sunsets January 1, 2030, unless extended by the legislature. Owners, general contractors, and subcontractors must update their contracts and internal processes before the effective date.

What Is SB 440, the Private Works Change Order Fair Payment Act?

SB 440, officially titled the Private Works Change Order Fair Payment Act, is a California law signed by Governor Newsom on October 10, 2025. The law passed unanimously — 77-0 in the Assembly and 34-0 in the Senate — reflecting broad industry support for reform. It adds new Civil Code section 8850, creating a mandatory framework for submitting, reviewing, and resolving change order disputes on most private construction projects in California.

Before SB 440, California had no specific statutory process for resolving change order claims on private works of improvement. While public works contractors have had a structured claims process under Public Contract Code section 9204 since 2017, private project participants were left to negotiate (or litigate) without a comparable statutory framework. SB 440 bridges that gap.

The law applies to contracts entered into on or after January 1, 2026, and contains a sunset provision: it will be repealed on January 1, 2030, unless extended by the legislature.

Who Does SB 440 Affect?

SB 440 applies broadly to participants on most large private construction projects in California:

• General contractors (direct contractors) working under contract with private owners
• Subcontractors at all tiers working on private works of improvement
• Private property owners and developers who commission construction work

Key exception: SB 440 does not apply to purely residential projects (non-mixed-use) that are four stories or fewer in height. It also does not apply to contracts where the owner is a public entity — those projects remain governed by Public Contract Code section 9204.

What Are the Key Provisions of SB 440?

What Qualifies as a “Claim” Under Section 8850?

A “claim” under SB 440 is a separate, formal demand sent by registered or certified mail (return receipt requested) by a contractor or authorized subcontractor for one or more of the following:

1. A time extension, including relief from delay damages or penalties assessed by the owner
2. Payment for work performed that is not otherwise expressly provided for in the contract
3. Payment of an amount that is disputed by the owner

Important: The claim must be supported by timely and reasonable documentation. The method of service — registered or certified mail — is mandatory. Email or hand delivery may not satisfy the statutory requirements.

What Are the Mandatory Deadlines and Timelines?

SB 440 establishes a structured, three-stage claims resolution process with specific deadlines at each stage:

What Happens If the Owner Fails to Respond?

SB 440 has significant enforcement teeth:

• Deemed denial: If the owner fails to respond within 30 days, the claim is deemed denied. This triggers the contractor’s right to demand an informal conference and proceed through the remaining statutory steps.
• 2% monthly interest: Undisputed amounts not paid within 60 days accrue interest at 2% per month (24% annually). Critically, amounts that were disputed but later determined to be owed may also be subject to this interest rate — calculated from the date they would have been due had they not been disputed.
• Stop-work rights: If the owner fails to comply with the statutory process or refuses mediation, the contractor may issue a stop-work notice. The contractor may suspend work 40 days after providing the required written notices (a 30-day notice followed by a 10-day notice of intent to stop work).

Can Parties Contract Around SB 440?

Not in the way many hope. SB 440 provides that:

• Pre-emptive waivers of SB 440 rights are void as against public policy
• Parties may agree to reasonable additional change order, claim, and dispute resolution procedures — but those procedures must not conflict with or impair Section 8850’s protections and timeframes
• Upon receipt of a specific claim, the parties may mutually agree in writing to extend the 30-day review period for that particular claim
• After a claim is submitted, the parties may mutually agree to waive the informal conference and mediation and proceed directly to arbitration or litigation

How Does SB 440 Compare to the Public Works Claims Process?

SB 440 was modeled on Public Contract Code section 9204, which has governed public works claims since 2017. Both laws share a similar three-stage structure, but there are notable differences:

How Does SB 440 Relate to Stop-Work Rights Under Civil Code Section 8850?

SB 440 creates a statutory right for contractors and, in certain circumstances, subcontractors to suspend performance without penalty when the owner fails to comply with the claims process. This stop-work right is triggered when:

• The owner fails to timely pay undisputed amounts
• The owner fails to respond to a claim within the required timeframes (deemed denial)
• The owner refuses to participate in the mandatory mediation process

The stop-work procedure requires the contractor to: (1) provide written notice by certified mail that payment is due or the claim is deemed denied; and (2) 30 days after that notice, provide a 10-day written notice of intent to stop work. This represents a significant shift in leverage for contractors on private projects.

How Do Subcontractor Claims Work Under SB 440?

SB 440 addresses the common “no privity” problem that prevents subcontractors from asserting claims directly against the project owner. Under the new law:

• A subcontractor may request in writing that the general contractor present a claim to the owner on the subcontractor’s behalf
• The general contractor must notify the subcontractor within 30 days whether it submitted the claim and, if not, explain why
• The general contractor must exercise good faith in fulfilling obligations to the subcontractor throughout the dispute resolution process
• The general contractor may not settle the subcontractor’s claim without the subcontractor’s written approval
• These provisions do not limit a subcontractor’s independent lien rights or stop-work remedies

Step-by-Step: How to Submit a Claim Under SB 440

1. Document the issue thoroughly. Gather time-stamped records, correspondence, daily logs, photographs, and cost documentation that support your claim.
2. Prepare a formal written claim identifying whether you seek a time extension, additional payment, or resolution of a disputed amount.
3. Send the claim by registered mail or certified mail with return receipt requested to the project owner. This service method is mandatory under the statute.
4. Calendar the 30-day response deadline. If the owner does not respond within 30 days, the claim is deemed denied and you may proceed to Stage 2.
5. Review the owner’s written response. Identify which portions are undisputed (payment due within 60 days) and which remain in dispute.
6. If disputed, send a written demand for an informal meet-and-confer conference by certified mail. The owner must schedule this within 30 days.
7. Attend the informal conference and document the outcome. The owner must issue a follow-up written statement within 10 business days.
8. For remaining disputes, proceed to non-binding mediation. Select a mediator within 10 business days — if you cannot agree, the contractor may select the mediator.
9. If mediation does not resolve the dispute, proceed to the contractual dispute resolution mechanism or litigation.

How to Use the 30-Day Response Window Effectively

Whether you are an owner or a contractor, the 30-day response window is critical:

For Owners:

• Designate an internal point of contact responsible for receiving and routing claims immediately upon receipt
• Calendar the 30-day deadline as soon as a claim arrives — missing this deadline results in a deemed denial
• Conduct a thorough review and clearly separate disputed from undisputed amounts in your written response
• Pay undisputed amounts promptly — delayed payment triggers 2% monthly interest
• Consider negotiating a written extension of the review period for complex claims, which the statute expressly permits

For Contractors:

• Track your mailing date and the owner’s receipt date carefully — the 30-day clock starts on the owner’s receipt
• If no response arrives within 30 days, document the deemed denial and promptly send a demand for an informal conference
• Use the period to continue gathering supporting documentation

When Should You Seek Legal Counsel?

Consider consulting a construction attorney in these situations:

• Before submitting a claim — to verify you have met all statutory requirements for form, content, and service
• When drafting or updating contract templates for 2026 and beyond — to build SB 440-compliant change order procedures
• When you receive a claim as an owner — to structure your response and protect your rights
• Before issuing or responding to a stop-work notice — given the significant financial consequences
• When a dispute proceeds to mediation or beyond — to protect your interests in formal proceedings

Bay Legal’s construction law team helps owners, general contractors, and subcontractors navigate California’s evolving construction payment laws. Visit our construction law page or read our 2026 California construction law update for additional context on the changes taking effect this year.

Need help with your construction project? Schedule a consultation with Bay Legal’s construction law team. Call (650) 668-8000 or visit baylegal.com/practice-areas/construction-law/.

Frequently Asked Questions About SB 440

Q: Does SB 440 apply to all private construction projects?

A: No. SB 440 applies to most large private construction projects but excludes purely residential projects (non-mixed-use) that are four stories or fewer. It also does not apply to public works projects, which remain governed by Public Contract Code section 9204.

Q: What is the interest penalty under SB 440 for late payment?

A: Undisputed amounts not paid within 60 days of the owner’s written response accrue interest at 2% per month — an annualized rate of 24%. Amounts that were disputed but later found to be owed may also be subject to this interest rate.

Q: Can our contract override SB 440’s requirements?

A: No. Pre-emptive waivers of SB 440 are void as against public policy. Parties may include additional reasonable dispute resolution procedures in their contracts, but those procedures cannot conflict with or impair the statutory timelines and protections of Section 8850.

Q: Does SB 440 apply to contracts signed before January 1, 2026?

A: No. SB 440 applies only to contracts entered into on or after January 1, 2026. Existing contracts are not affected. However, new task orders or change orders executed after that date under an existing master agreement may trigger the statute’s requirements.

Q: What happens after SB 440’s sunset date of January 1, 2030?

A: Unless the California legislature extends or makes the law permanent before that date, SB 440 will be repealed on January 1, 2030. Contracts entered into during the effective period will still be governed by the law for claims that arise during the contract’s performance.

Disclaimer: This content is for informational purposes only and does not constitute legal advice. Results depend on the specific facts of each situation. No attorney-client relationship is created by reading this article. Contact Bay Legal, PC for advice on your specific situation.

Responsible Attorney: Bay Legal, PC — (650) 668-8000