Recently enacted legislation (Civil Code section 8850) established a pre-litigation dispute resolution procedure for disputes between contactors and owners, consisting of informal negotiations followed by mediation.  The legislation applies to works of improvement and site improvements, the contracts for which are entered into on or after January 1, 2026, except not to residential projects that are not mixed use and do not exceed 4 stories.  (The legislation will expire on January 1, 2030.)

The statutory procedure is initiated by the contractor’s claim in the form of a written demand for one or more of the following: (a) an extension of time to perform the work, (b) payment by the owner of money or damages arising from work performed pursuant to the contract, for which payment is not otherwise expressly provided or to which the contractor is not otherwise entitled, and (c) payment of an amount that is disputed by the owner.  Upon the owner’s receipt of the contractor’s claim, the parties identify which items are in dispute and which are not in dispute.  Then, the contractor provides support for the disputed items while the owner pays the undisputed ones.  If the contractor demands an informal conference, the parties meet and confer in an attempt to resolve the disputed items.  Any items still in dispute after the informal conference are submitted to nonbinding mediation.  If the mediation does not resolve all the disputed items, the parties are free to pursue litigation, in which case any disputed amounts determined to be owed by the owner bear interest at the rate of 2 percent per month, accruing from the date originally due.  If the owner fails to respond or timely comply with the statutory requirements, the contractor is entitled to stop work until payment is received, provided that the contractor provides the owner with the certain written notices.