from Mark Smith, Advocate, California Builders Alliance
SB 61 - 5% retention payments - signed into law by the Governor
We are pleased to inform you that Senate Bill 61 (Cortese)— a key piece of legislation championed by Exchanges across California —was signed into law by Governor Newsom on July 14, 2025. This major victory follows years of advocacy by our organization and partners dedicated to improving payment practices in the commercial construction industry. This landmark legislation addresses longstanding financial challenges faced by construction contractors and subcontractors working on privately financed projects.
Starting with contracts on or after January 1, 2026, SB 61 limits the amount of retention that can be withheld on private works of improvement to 5%, bringing private sector practices in line with the proven, effective cap already in place for public works across California.
Our organization supported SB 61 because excessive retention—often set at 10%—has created chronic cash-flow difficulties, especially for subcontractors, small businesses, and minority-owned firms. The excessive withholding of payments force both contractors and subcontractors—many of them small businesses or firms with limited working capital—to rely on expensive credit lines to bridge payroll, materials, and operational costs. By lowering retention to 5%, our businesses can better maintain liquidity, meet payroll, fund materials, and invest in future projects without resorting to costly credit lines. This change will promote fairness, stability, and predictability across the industry, reduce the risk of project delays due to financial strain, and encourage greater participation from a broad diversity of firms.
eyond these primary benefits, SB 61 is set to foster broader positive impacts across the commercial construction industry. Notably, the new law will help reduce overall construction costs, enabling contractors to bid more competitively and reducing delays associated with cash-flow constraints. By creating a more equitable and secure payment environment, the bill is expected to support job creation, increase competition, and help attract a wider and more diverse pool of contractors and subcontractors. SB 61 also brings California in line with more than 20 other states that have already adopted predictable 5% caps for private projects, and builds on the proven success of this standard in our own public sector for over a decade.
We thank our members for their help in advocating for SB 61 and recognize the collaborative efforts that led to this crucial reform. We remain committed to monitoring the law’s implementation and will continue working to advance policies that sustain a fair, competitive, and thriving construction industry throughout California.
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Mark Smith
Advocate
California Builders Alliance
5370 Elvas Avenue ǀ Sacramento, CA 95819
Cell: 916.335.5072
Email: mark.smith@calbuilders.org
Email: mark@smithpolicygroup.com
