SB 61 California: How the 5% Retention Cap Improves Cash Flow for Pacific Beach Subcontractors in 2026

The Cash Flow Crisis Hitting Pacific Beach Subcontractors

If you're an electrician, plumber, framer, or HVAC contractor working on Pacific Beach projects, you know the painful reality: you bill $100,000 for completed work, but only receive $90,000. The remaining $10,000 sits in retention for 60-90 days while you're still paying suppliers, crew payroll, and equipment costs out of pocket.

Recent industry research reveals the severity of this cash flow squeeze: 40% of subcontractors retain half to all of their profits in the business just to fund operations, with slow, unpredictable payments being the leading culprit. While general contractors believe payments occur within 30 days after a pay application, subcontractors actually wait 56 days on average. Even worse, 43% of subcontractors lack enough working capital to cover unexpected expenses or project delays.

For trades working on Pacific Beach's active construction scene—from Garnet Avenue commercial tenant improvements to multi-story mixed-use developments like the 239-foot Turquoise Street tower—retention holdbacks create a constant financial strain. You're essentially financing the entire job: paying labor and materials upfront while waiting months to recover withheld funds.

Starting January 1, 2026, that financial burden just got lighter.

SB 61: California Cuts Retention to 5% on Private Projects

Effective January 1, 2026, California Civil Code Section 8811 establishes a mandatory 5% cap on retention payments for most private construction contracts. This reduces the industry standard from 10% to 5%, immediately returning thousands of dollars to subcontractor working capital.

Senator Dave Cortese, the bill's sponsor, called it a "big win for small business minority contractors and subcontractors," stating: "What this law will do is enable small business owners, minority contractors and subcontractors working on private projects, to keep the cash flowing for materials used and labor performed just as if the private project was a public works project. Keeping the cash flowing will reduce construction timelines and costs."

The law aligns private sector practices with the 5% retention cap already in place for public works projects, creating consistent payment standards across California construction.

The Financial Impact: Before vs. After SB 61

Here's how the 5% retention cap translates to real money for Pacific Beach subcontractors across typical project sizes:

Small Commercial Tenant Improvement ($100,000 Contract)

Payment Structure	Before SB 61 (10% Retention)	After SB 61 (5% Retention)	Cash Flow Improvement
Total Contract Value	$100,000	$100,000	—
Retention Withheld	$10,000	$5,000	+$5,000
Initial Payment Received	$90,000	$95,000	+$5,000
Tied Up for 60-90 Days	$10,000	$5,000	$5,000 back in your business

Mid-Size Mixed-Use Project ($300,000 Contract)

Payment Structure	Before SB 61 (10% Retention)	After SB 61 (5% Retention)	Cash Flow Improvement
Total Contract Value	$300,000	$300,000	—
Retention Withheld	$30,000	$15,000	+$15,000
Initial Payment Received	$270,000	$285,000	+$15,000
Tied Up for 60-90 Days	$30,000	$15,000	$15,000 working capital

Large Commercial Build-Out ($500,000 Contract)

Payment Structure	Before SB 61 (10% Retention)	After SB 61 (5% Retention)	Cash Flow Improvement
Total Contract Value	$500,000	$500,000	—
Retention Withheld	$50,000	$25,000	+$25,000
Initial Payment Received	$450,000	$475,000	+$25,000
Tied Up for 60-90 Days	$50,000	$25,000	$25,000 immediate liquidity

Bottom line: On a $300,000 Pacific Beach commercial project, SB 61 puts $15,000 back in your pocket immediately—money you can use to purchase materials without credit lines, maintain crews during payment delays, or bid more competitively on the next job.

What Projects Are Covered? Understanding the Exemptions

SB 61 applies to most private construction contracts entered into on or after January 1, 2026. However, subcontractors need to understand critical exemptions:

Covered Projects (5% Retention Cap Applies):

• Commercial construction: Retail build-outs, office tenant improvements, restaurant renovations
• Mixed-use developments: Projects combining residential and commercial space (like the Turquoise Street tower)
• Large residential remodels: Major renovations, additions, or custom homes over four stories
• Institutional projects: Private schools, hospitals, community facilities
• Industrial work: Warehouses, manufacturing facilities

Exempt Projects (10% Retention Still Allowed):

• Residential-only projects (non-mixed-use) four stories or fewer: Single-family homes, duplexes, small apartment buildings
• Contracts under $500,000 (depending on project type)
• Projects where performance and payment bonds are required but not provided

For Pacific Beach subcontractors, this means the 5% cap applies to most commercial work on Garnet Avenue, mixed-use developments along the coast, and large-scale residential remodels in La Jolla and Bird Rock. However, traditional single-family home remodels in Mission Beach or four-story residential buildings remain exempt.

Flow-Down Requirements: GCs Must Pass Savings to Subs

Here's critical protection for subcontractors: SB 61 includes flow-down requirements that prevent general contractors from pocketing the retention reduction themselves.

The rule: The percentage of retention withheld under any subcontract cannot exceed the percentage withheld under the prime contract between the owner and general contractor.

In practice:

• If the owner withholds only 3% from the GC, the GC can withhold no more than 3% from you
• If the prime contract caps retention at 5%, all subcontracts must honor that 5% cap or lower
• GCs cannot withhold 8% from subs while only having 5% withheld from them

This flow-down protection is non-waivable. You cannot sign away your rights to the 5% cap—any contract provision attempting to do so is void under California Civil Code Section 8820, which deems such waivers against public policy.

Pacific Beach Builder: Committed to Fair Payment Practices

At Pacific Beach Builder, we understand the financial pressures subcontractors face. Cash flow isn't just a spreadsheet number—it's the difference between maintaining your crew through slow periods and scrambling for credit lines to cover payroll.

That's why we're committed to payment practices that respect the work you do:

• Full SB 61 compliance: We cap retention at 5% on all covered projects, effective immediately for contracts entered after January 1, 2026
• Transparent payment schedules: Clear timelines for progress payments and retention release
• Flow-down consistency: If we negotiate lower retention with owners, we pass those savings to our subcontractor partners
• Prompt processing: We work to minimize the gap between your invoice submission and payment receipt

When you work with Pacific Beach Builder on commercial projects, mixed-use developments, or large residential remodels in Pacific Beach, La Jolla, Mission Beach, or Bird Rock, you can count on fair retention practices that keep cash flowing to your business.

What This Means for Your Business in 2026

The 5% retention cap represents more than just a percentage point reduction—it's a fundamental shift in how private construction projects manage subcontractor payments.

Immediate benefits for Pacific Beach trades:

1. Reduced reliance on credit lines: With $5,000-$25,000+ more working capital per project, you can purchase materials and cover payroll without maxing out business credit
2. Competitive bidding advantage: Better cash flow means you can take on multiple projects simultaneously without capital constraints
3. Financial stability during payment delays: If a GC payment runs late, you have more liquidity to weather the delay without disrupting operations
4. Alignment with public works: The same 5% retention standard now applies whether you're working on a city infrastructure project or a private commercial build-out
5. Legal protection: Mandatory attorneys' fees for prevailing parties ensure enforcement of the 5% cap if disputes arise

For an electrical contractor juggling three concurrent Pacific Beach projects worth $100,000 each, SB 61 means $15,000 additional working capital compared to the old 10% retention standard. That's real money that stays in your business instead of sitting in someone else's account.

Action Steps for Subcontractors

As you navigate the 2026 construction season in Pacific Beach and surrounding coastal areas, here's how to leverage SB 61:

1. Review new contracts carefully: For any contract entered after January 1, 2026, verify that retention doesn't exceed 5% (or the prime contract percentage, whichever is lower)
2. Confirm project eligibility: Determine whether your project is covered (commercial/mixed-use) or exempt (residential four-story-or-less)
3. Request prime contract retention percentage: Ask your GC what retention the owner is withholding from them—your retention should match or be lower
4. Document retention violations: If a GC attempts to withhold more than 5% on covered projects, document it immediately—you may be entitled to attorneys' fees
5. Adjust cash flow projections: Update your business financial models to reflect improved cash flow from reduced retention
6. Choose payment-conscious GCs: Partner with general contractors like Pacific Beach Builder who proactively honor fair retention practices

California's construction industry runs on the skilled work of electricians, plumbers, framers, HVAC contractors, and countless other trades. SB 61 recognizes that your cash flow matters—and that faster payment means better projects for everyone.

For Pacific Beach subcontractors working on the coast's active commercial and mixed-use construction scene, the 5% retention cap represents thousands of dollars returned to your business, reduced credit line dependence, and greater financial stability throughout 2026 and beyond.