Change In Retention Cap For Private Projects In California

Starting on January 1, 2026, California will enforce a new law that limits retention in private construction contracts to 5%, aligning private projects (where retention is typically 10%) with public works retention rules (where retention is limited to 5%). This change in the law is set forth in amended Civil Code § 8811 and aims to modify payment practices and risk management in the construction industry. Below is a short summary of the new law.

• Mandatory 5% retention cap: The law caps retention withholding on progress payments and total contract retention at 5%, applying down the payment chain and rendering any higher retention clauses unenforceable. This applies to owners, direct contractors and subcontractors.