Private works of improvement: retention payments.

Senator Cortese's private works improvement legislation establishes new limits on retention payments in construction contracts, capping withholdings at 5% of payment amounts and total contract value for projects initiated after January 1, 2026. The measure applies these limits across the contracting chain - from property owners to direct contractors and between contractors and their subcontractors.

The bill creates two key exceptions to the retention caps. First, the limits do not apply when contractors require performance and payment bonds during bidding if subcontractors subsequently fail to provide bonds from admitted surety insurers. Second, the restrictions exclude residential projects that are not mixed-use and remain under four stories. For contracts covered by the new requirements, the retention percentage withheld between contractors and subcontractors cannot exceed the rate specified in the original owner-contractor agreement.

To promote compliance, the legislation requires courts to award reasonable attorney's fees to prevailing parties in any legal action enforcing these provisions. This builds upon existing law that requires owners to pay retained funds to direct contractors within 45 days of project completion, while establishing new parameters around the maximum amounts that can be withheld throughout construction.