The Private Works Change Order Fair Payment Act (the “Act”), codified at California Civil Code section 8850, alters the leverage dynamics in private construction disputes. Effective for most private construction contracts entered on or after January 1, 2026, the Act mandates a dispute-resolution procedure and strict timelines for claims involving time extensions, relief from delay damages, or disputed payments. The Act aims to bypass privity barriers, reduce financial hardships, avoid costly litigation, and pressure owners and contractors to pay subcontractors.

Most notably, the Act requires contractors to present and pursue subcontractor claims against the owner, while imposing deadlines and financial consequences for owners who delay payment or fail to comply with the statutory process. These statutory protections are not waivable, and any attempt to insert a waiver of these protections or inconsistent terms in the subcontract is automatically void.

For plumbing subcontractors in particular, the Act provides a meaningful avenue for resolving delay claims that commonly arise on their projects, including claims stemming from trade interference, out-of-sequence work, or design changes that result in costly rework. Because plumbing work is highly dependent on the timing and coordination with other trades, plumbing subcontractors are especially vulnerable to disruptions and delays beyond their control. By requiring contractors to pass these claims through to the owner and imposing firm deadlines with financial consequences, the Act provides plumbing subcontractors with a statutory mechanism to pursue compensation and time extensions that were previously difficult to obtain from the contractor alone.

Breaking the Privity Barrier: The Pass-Through Claim Requirement  

Subcontractors have long been frustrated by the inability to submit claims to the owner due to the lack of privity. Section 8850(j) bridges this gap by statutorily requiring contractors to act on lower-tier claims. Upon receipt of a subcontractor’s claim, the contractor has 30 days to send the claim via registered/certified mail to the owner and then pursue it in good faith. Under section 8850(j)(3)(B), the contractor is prohibited from settling a subcontractor’s claim without the subcontractor’s written consent.

Strict Timelines and the ‘Deemed Denied’ Trap

Upon receiving a claim, the owner has 30 days to respond in writing and identify which portions of the claim are disputed and which are undisputed. The parties may agree in writing to extend the 30-day window for complex claims. Under section 8850(g)(1), the claim is “deemed denied” if the owner fails to respond within the allotted/agreed time. The owner must pay any undisputed amount and/or execute a change order agreeing to any undisputed time extension 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) proceeds to nonbinding mediation. If the parties cannot agree on a mediator 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. The parties may, in writing, waive the meet-and-confer and mediation processes.

The Ultimate Leverage: Financial Penalties and the Right to Stop Work

The 2% Interest Penalty: Any undisputed amounts not paid within the required timeframes accrue a 2% per month interest 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 arguably 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).

The Right to Suspend Work: Subcontractors 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 or that a claim was deemed denied, wait 30 days, and then serve a separate 10-day written notice of intent to suspend work. This penalty is broader than the current right to stop work under Civil Code section 8832, which only allows the subcontractor 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 Documentation”: The 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 meticulous daily logs, labor tracking records, payroll records, material invoices, and delay impact reports.

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