sion within 60 days of issuing its written response. If any portion of the claim is denied or the subcontractor disputes the owner’s written statement, the contractor may request a meet-and-confer, which must occur within 30 days. If any portion of the claim remains unresolved, the owner has 10 days to issue a final written statement, after which the remaining claim(s) pro- ceeds to nonbinding mediation. If the parties cannot agree on a me-


diator within 10 days of the owner’s final statement, the contractor may unilaterally select the mediator. Mediator costs must be split equally. If any claim(s) remains unresolved after nonbinding mediation, then those claims proceed to either litigation or arbitration, as specified in the contract. Te parties may, in writing, waive the meet- and-confer and mediation processes.


The Ultimate Leverage: Financial Penalties and the Right to Stop Work Te 2% Interest Penalty:Any undisputed amounts not paid within the required timeframes accrue a 2% per month inter- est penalty. Furthermore, under section 8850(h)(2), if any disputed amount is later found to be owed to the subcontractor through arbitration/litigation, or by a final judgment, the 2% per month interest argu- ably applies retroactively from the date the payment originally became due, potentially creating significant exposure for owners. This 2% penalty is different and in addition to the 2% penalty provided for in the prompt payment statute that governs progress payments (Civil Code section 8832).


Te Right to Suspend Work: Subcontrac- tors may suspend work without penalty if not paid. Under section 8850(k)(1)-(2), the subcontractor must first serve the owner with a written notice that payment is due


The Private Works Change Order Fair Payment Act creates a powerful yet highly procedural set of rights. It is imperative that several key areas be addressed during contract draſting and that subcontractors understand how to maintain proper documentation to support claims and how to submit claims correctly.


or that a claim was deemed denied, wait 30 days, and then serve a separate 10-day written notice of intent to suspend work. Tis penalty is broader than the cur-


rent right to stop work under Civil Code section 8832, which only allows the sub- contractor to suspend work when there is no dispute as to the subcontractor’s satisfactory performance of the work for which payment is due.


Operational Takeaways The Act creates a powerful yet highly procedural set of rights. It is imperative that several key areas be addressed during contract drafting and that subcontractors understand how to maintain proper documentation to support claims and how to submit claims correctly.


Defining “Reasonable Documenta- tion:” Te subcontractor must cooperate with the claim process and provide the contractor with “timely and reasonable documentation” to support the claim. To avoid disputes over the sufficiency of the subcontractor’s documentation, the subcontract should define as explicitly as possible what constitutes “reasonable documentation.” Among other things, subcontractors must maintain meticu- lous daily logs, labor tracking records,


payroll records, material invoices, and delay impact reports.


Mandatory Notice Procedures:Subcon- tractors must deliver all required notices by registered/certified mail; otherwise, the notice is invalid. Subcontractors must strictly comply with all notice timelines.


Teresa Becerra


Theresa Becerra is a business, real estate, and construction attorney with over 25 years of experience specializing in housing, complex commercial disputes, and high-stakes litigation involving unfair business practices, contract interference, and fiduciary claims.


Zackary G. Smith


Zackary G. (Zack) Smith represents public and privately held companies in industries including construction, manufacturing, oil and gas, and real estate with general and complex commercial litigation matters, arbitrations, and administrative proceedings in jurisdictions throughout the country.


CALIFORNIA CONSTRUCTOR MAY/JUNE 2026


25


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32