On July 14, 2025, Governor Gavin Newsom signed S.B. 61 into law. S.B. 61 limits the amount that may be withheld for project retention to 5% for new contracts entered into on or after January 1, 2026.
S.B. 61 adds new Civil Code Section 8811 to the California Codes. Specifically, the new law reduces private works retention withholds from 10% to 5% and mirrors public works contracts, which have limited project retention to 5% since 2012.
The new law is flow-down and applies equally to both private works owners (who can now withhold only 5% retention from general contractor payment applications) and private works general contractors (who may now withhold only 5% retention from subcontractor payment applications).
There are a few exceptions to Civil Code Section 8811. It does not apply to residential projects that are not mixed-used and do not exceed four stories in height. For those projects, an owner and general contractor may still withhold 10% retention.
Most importantly, the new law stipulates that a general contractor may still withhold 10% retention if before or after the time of bid, the general contractor requests, in writing, that a subcontractor provide a performance and payment bond and the subcontractor fails to do so. In that situation, if a written demand has been made and the subcontractor fails to so post bonds, the general contractor may withhold 10% retention as security for the subcontractor’s failure to bond-back the project.
The Legislature also included an enforcement mechanism within the new law. Any violation of Civil Code Section 8811 can result in an attorney’s fees award to the prevailing party.
S.B. 61 was spearheaded by the electrical contractor’s union and gained unanimous legislative support. There was no formal industry opposition to the new law as it should improve cash-flow for private works contractors. California now joins 21 other states that have capped private works retention at 5%.
