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Aug 19, 2026
Waiting on final payment can lead to severe cash-flow issues for contractors and subcontractors alike, especially when the job is finished. California prompt payment laws detail when certain construction payments must be released to contractors and subcontractors, and specify penalties when the funds are wrongfully withheld.
In Costa Mesa and the rest of Orange County, contractors should understand these rules to determine whether an owner or general contractor (GC) has a legal excuse for withholding retention.
The Engels-O’Brien Way
Christopher Engels’s journey to becoming an attorney included 25 years of hands-on experience in the construction contracting industry. Engels-O’Brien handles disputes that arise between owners, contractors, and subcontractors. This can include construction payment issues, breach of contract claims, and many other issues that can occur during the course of a project.
Christopher’s experience gives him first-hand knowledge of how construction projects operate, and the pressure contractors face when payments have not been made in a timely manner. The firm negotiates with all parties to reach practical resolutions, and litigates when a construction dispute cannot be settled.
What Is Retention Under California Law?
Retention is part of your payment withheld until certain work has been completed. Contract owners withhold retention to protect their financial interest if a contractor fails to complete its obligations under the contract. California law dictates when retention can be withheld and when it must be paid.
California passed a new retention law that applies to some private projects as well. Civil Code § 8811 applies to eligible private construction contracts entered into on or after January 1, 2026. The new statute generally limits retention to 5% of an individual payment or 5% of the contract price. The statute includes exceptions, however. There’s an exception for certain residential projects consisting of four stories or less that aren’t mixed-use.
Contractors need to know when the contract was executed and whether an exception applies before assuming the limit applies to their project.
Disputes over payment can be for large sums of money in California. The California Contractors State License Board had over $35.3 million in consumer restitution as a result of complaint investigations in fiscal year 2024–’25. Of that sum, $7.4 million was recovered by consumers through construction-related legal rulings.
Although not specific to retention disputes, these totals show that there can be significant money at stake when construction expectations are not met.
When Must an Owner Release Retention on a Private Project?
Civil Code § 8812 requires private owners to release retention to the direct contractor within 45 days after completion of the work of improvement. The rule allows an owner to withhold money if a legitimate dispute exists. The law also permits the owner to withhold 150% of the disputed amount if the owner and direct contractor have a good-faith dispute over retention.
Even with a substantial disagreement, an owner isn’t always permitted to withhold the full outstanding contract sum.
How Quickly Must a GC Pay a Subcontractor’s Retention?
The state of California also specifies a timeframe for the release of retention as it moves through the payment structure. Civil Code § 8814 requires a direct contractor that receives retention to pay each subcontractor its proper share within 10 days.
For instance, let’s say a general contractor gets its retention funds and nonetheless holds up payment of a subcontractor’s undisputed portion for weeks. Such delay could trigger California’s prompt payment statutes even though the subcontractor ultimately gets paid.
When to Hire a Construction Lawyer
You should consider hiring a construction lawyer if an owner or GC is no longer going to release retention after the applicable payment deadline has passed. Your California construction attorney can go over the contract to see if the withholding is covered by any legal exceptions. Additionally, counsel can calculate any potential prompt payment penalties.
A California construction attorney can determine if other payment remedies may apply to your project. If necessary, when you hire a construction lawyer, they can file a construction claim to recover the unpaid amount along with any statutory remedies.
Construction payment disputes that go to litigation may be heard in Orange County Superior Court. Central Justice Center, 700 Civic Center Drive West, Santa Ana, CA 92701. At Engels-O’Brien, we can explain construction laws to you and how they apply to your construction case.
FAQs
What Evidence Can Help Prove a California Prompt Payment Claim?
Examples of evidence that may help prove a claim include the construction contract, the invoice, payment applications, bank statements, and correspondence relating to payment. Proof of when work was finished can also be valuable. Contractors should keep records of when they sent invoices and when they received payment. If the payer provided written reasons for withholding payment, that could help determine if a legitimate payment dispute existed.
Do California Subcontractors Have Prompt Payment Rights Directly Against the Property Owner?
No, California subcontractors typically do not have prompt payment rights directly against the property owner. A subcontractor’s prompt payment rights against a general contractor are usually independent of the owner’s contractual obligation to pay the general contractor. Because subcontractors rarely have a direct agreement with the property owner, they may need to rely on alternative statutory provisions to recover funds if payment stalls.
Are Attorneys’ Fees Available in a California Prompt Payment Claim?
Attorneys’ fees may be available in a California Prompt Payment claim. Availability of fees depends on which statute applies to the payment dispute. This aspect of the law can have a major impact on a construction case because the financial damages could include not only the unpaid balance, but also any accrued statutory payment penalties, as well as attorney’s fees.
Can a Contractor Recover Prompt Payment Penalties if They Received the Original Amount Due?
A contractor may be able to recover prompt payment penalties even if they received the original amount due. Just because the underlying payment was eventually received does not mean the claim is automatically no longer valid. Contractors should note when payment was due and when it was actually received so any potential penalty can be calculated.
Understand Your Legal Options
When an owner or general contractor is delaying payment or retention past California statutory deadlines, Engels-O’Brien can advise you on your rights to recover the funds owed to you. Call our office to talk about your construction payment issue and the potential remedies afforded to you by California statute.
