For decades, the "10% retention" has been a standard headache for California fence contractors. You do the work, you buy the high-quality chain link or premium redwood, you pay your crew, and then you wait months—or even years—to see that last 10% of your hard-earned money.
As of January 1, 2026, the game has changed. Senate Bill 61 (SB 61) officially went into effect, capping retention on most private construction projects at 5%. This brings private sector rules in line with the standards already used for public works, and it’s a major win for your cash flow.
Here is everything you need to know to stay compliant and get paid faster.
The Core Rule: The 5% Hard Cap
Under the new California Civil Code § 8811, the amount of money an owner or general contractor can withhold from you is strictly limited:
- Progress Payments: No more than 5% can be withheld from any individual progress payment.
- Total Contract: The total retention held at the end of the project cannot exceed 5% of the total contract price.
- The "Flow-Down" Rule: If you hire sub-subcontractors (like a specialized gate automation tech), you cannot withhold more from them than what is being withheld from you. If the owner only takes 3% from the prime contractor, you can only take 3% from your subs.
Note: This law is not waivable. Even if a client asks you to sign a contract agreeing to 10% retention, that clause is legally void.
What Projects are Covered?
The law applies to private works of improvement entered into on or after January 1, 2026. However, there are two major exceptions fence contractors need to watch for:
The Residential Exception
If you are fencing a standard backyard for a homeowner or a small apartment complex (4 stories or less), the 5% cap does not apply. You can still negotiate a 10% retention in those specific cases.
The "Bonding" Loophole
There is one way the 5% cap can be legally exceeded on a commercial job: Bonds.
If a general contractor (GC) notifies you in writing—at the time they request your bid—that you must provide a performance and payment bond, and you fail to provide that bond, they are legally allowed to withhold more than 5% to offset their risk.
Adjusting Your Billing Workflow
To stay compliant and ensure you aren't leaving money on the table, you should update your administrative processes immediately:
1. Update Your Contract Templates
Review your standard private-sector contracts. Any mention of "10% retention" for commercial or large-scale residential projects should be updated to "5%."
2. Monitor "Flow-Down" Percentages
If you are a subcontractor, ask the GC what their retention rate is with the owner. If the owner has negotiated a 3% retention, the GC cannot legally hold 5% from you. Your billing software should be adjusted to match the prime contract's percentage.
3. Leverage the "Prevailing Party" Clause
SB 61 has teeth. If an owner or GC illegally withholds 10% on a project covered by the 5% cap, and you have to take them to court or arbitration, the law mandates that the prevailing party receives reasonable attorney’s fees. This gives you significant leverage when demanding your funds.
4. Cash Flow Planning
With 5% more of your money staying in your pocket during the project, you may have more liquidity for materials and payroll. Use this to your advantage by negotiating better "cash-on-delivery" discounts with your fence material suppliers.
Enforcement & Penalties
If a party violates SB 61, they aren't just breaking a rule—they are violating California’s prompt payment statutes. This can lead to:
- Interest penalties (often 2% per month on the wrongfully withheld amount).
- Legal fees (as mentioned above).
- Potential CSLB disciplinary action if the pattern of non-compliance is severe.