By Jeffrey B. Baird, Partner of Finch, Thornton & Baird, LLP
Under California Civil Code Section 8850, effective January 1, 2026, the traditional tactic on private works construction of rejecting or stalling change order claims while requiring a prime contractor or subcontractor to continue work is dead. Civil Code Section 8850 requires owners to promptly deal with claims or risk work stoppage, penalty interest, or both. Because this statute is non-waivable, its provisions override any conflicting contract language. If an owner fails to meet several strict deadlines for processing claims, the contractor now possesses a statutory right to suspend work without being in breach. This effectively flips the “duty to proceed” language owners and prime contractors historically used to keep projects moving during disputes.
The disruption potential for major projects is unprecedented, particularly regarding subcontractor claims. In the past, a sub might have been forced to carry costs for months or years to avoid a default termination. Now, Civil Code Section 8850 allows subcontractors to pursue a formal claim process that must be precisely followed. If an owner fails to adhere to the rigid procedural schedule, they can trigger a punitive 2 percent monthly interest penalty and stop work rights. This 24 percent annual rate turns a simple delay into a massive financial liability that can quickly eclipse the project’s profit margins.
Administrative precision is now the only way to mitigate project risk. Every claim, regardless of size, must be met with a timely owner response and the statutorily required meet and confer, written statement, and mediation. There is no workaround for the owner. Contractors must also exercise extreme caution: rejecting a subcontractor claim without a good faith position can find the prime contractor in breach, and failing to monitor the owner’s response may leave the prime contractor in receipt of a stop work notice. This shift requires project management teams to overhaul their standard practices and remain on high alert the moment a claim hits the door.
Because the statute mandates a “meet and confer” followed by mandatory mediation for any disputed claim, the industry is facing a massive procedural bottleneck. As claim resolution becomes a project priority, parties will require mediators with a “course of construction” mindset who are available on short notice—not the classic model of waiting months for a date to open. Owners and contractors must have mediators pre-selected for high-velocity mediations who can sit down within days, not months, to prevent a claim from escalating into a full work stoppage and to avoid a mounting backlog of project claims.
Ultimately, Civil Code 8850 has fundamentally rebalanced the scales of power on private works. The era of using the “Duty to Proceed” to ignore subcontractor grievances has ended, replaced by a mandatory, high-speed dispute resolution framework. To succeed in this new environment, stakeholders must treat the mediation process not as a part of future litigation but as a critical project milestone.
Construction Contractors should review all contract forms and templates to ensure compliance with the new law. Contact Jeffrey B. Baird, Esq. or Daniel Spencer, Esq. of Finch, Thornton & Baird, LLP at (858) 737-3100 for additional strategies to avoid potential exposure arising from this new statutory requirement.
DISCLAIMER: This new law advisory is a publication of Finch, Thornton & Baird, LLP, for the purpose of providing information relating to recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice, and it does not create an attorney-client relationship.
