AB 1885 (2025) — Public contracts: retention proceeds.

AMENDED IN ASSEMBLY APRIL 28, 2026

AMENDED IN ASSEMBLY MARCH 16, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

ASSEMBLY BILLNo. 1885

Introduced by Assembly Member Carrillo

February 12, 2026

An act to ~~repeal and add Section 6106.5~~ add and repeal Section 7202.5 of the Public Contract Code, relating to public contracts.

Vote: majority Appropriation: no Fiscal committee: yes Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law requires state agencies to include a provision in solicitations and contracts, if the estimated amount to be retained exceeds $10,000 and the retention continues for a period of 60 days beyond the completion of phased services, to permit, upon written request and the expense of the contractor, the payment of retentions earned directly to a state- or federally chartered bank in this state, as the escrow agent. Existing law also provides an escrow agreement form for a contractor and state agency to use for security deposits, and defines a “state agency” for purposes of these provisions.

This bill would repeal those provisions, including the escrow agreement form, and instead prohibit a state agency, as defined, from withholding retention proceeds when making progress payments to a contractor, as defined, for work performed on a public works contract. The

Existing law, with respect to a contract relating to the construction of any public work of improvement, prohibits the retention proceeds withheld from any payment by a public entity from the original contractor, by the original contractor from any subcontractor, and by a subcontractor from any subcontractor from exceeding 5% of the payment, except as specified.

This bill, with respect to those contracts, would further limit specified state agencies, including the Department of Water Resources, the Department of Parks and Recreation, and the Department of Corrections and Rehabilitation, from withholding retention proceeds from a progress payment to a contractor in excess of 3.5% of the payment. The bill would require ~~a state agency~~ those state agencies to promptly notify the appropriate policy committees of the Legislature if the state agency’s best interests are compromised because ~~retention was not withheld on a state agency public works contract.~~ of the 3.5% retention limitation imposed by the bill.

Existing law, except as specified, prohibits the percentage of the retention proceeds withheld in a contract between the original contractor and a subcontractor, and in a contract between a subcontractor and any subcontractor thereunder, from exceeding the percentage specified in the contract between the public entity and the original contractor.

This bill would provide that nothing in the bill alters, amends, or impairs the rights, duties, and obligations of an original contractor, its subcontractors, and all subcontractors thereunder relating to the construction of any public work of improvement pursuant to the above-described provision.

This bill would repeal its provisions on January 1, 2032.

The people of the State of California do enact as follows:

SECTION 1.
Section 6106.5 of the Public Contract Code is repealed.
SEC. 2.
Section 6106.5 is added to the Public Contract Code, to read:
6106.5.

SECTION 1.

Section 7202.5 is added to the Public Contract Code, to read:

7202.5.

(a) “State agency,” as used in this section, means those departments defined in Section 10106, except for the Department of Transportation, which is governed by Section 7202.

(b) “Contractor,” as used in this section, means “firm,” “architectural, landscape architectural, engineering, environmental, and land surveying services,” “construction project management,” and “environmental services” as defined in Section 4525 of the Government Code.

(c) ~~A state agency shall not withhold retention proceeds~~ Notwithstanding Section 7201, retention proceeds withheld from a payment by a state agency when making progress payments to a contractor for work performed on a public works ~~contract.~~ contract shall not exceed 3.5 percent of the payment.

(d) Nothing in this section shall alter, amend, or impair the rights, duties, and obligations of an original contractor, its subcontractors, and all subcontractors thereunder relating to the construction of any public work of improvement as set forth in Section 7200.

(e) A state agency shall promptly notify the appropriate policy committees of the Legislature if the state agency’s best interests are compromised because ~~retention was not withheld on a state agency public works contract.~~ of the 3.5-percent limitation on retention proceeds imposed by subdivision (c).

(f) This section applies to all public works contracts awarded by a state agency after January 1, 2027.

(g) This section shall remain in effect only until January 1, 2032, and as of that date is repealed.