AB 1885 California Assembly · 2025-2026 Regular Session

Public contracts: retention proceeds.

Summary

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 those state agencies to promptly notify the appropriate policy committees of the Legislature if the state agency's best interests are compromised because 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.

Bill status in committee 1 of 4 stages cleared

Introduction

Feb 2026

Committee Review

Floor Vote

Governor

Introduced Feb 12, 2026 Last action May 14, 2026

Maddy AI version diff · 3 comparisons

What changed between versions

02/12/26 - Introduced → 03/16/26 - Amended Assembly · 7 edits · Mar 16, 2026

MODERATE

The Assembly amendment completely transforms AB 1885 from a minor technical fix into a major policy change. The introduced version only made a nonsubstantive edit to a definition in Section 6106.5 of the Public Contract Code. The amended version repeals the entire existing section (including escrow agreement requirements for professional services contracts) and replaces it with a new provision that prohibits state agencies from withholding retention proceeds when making progress payments on public works contracts, effective for contracts awarded after January 1, 2027.

Scope change

The bill shifts from a narrow technical amendment to professional services contract escrow rules to a broad prohibition on retention withholding across all state agency public works contracts, with DOT carved out. The effective date is January 1, 2027 for newly awarded contracts.

SCOPE

The entire existing Section 6106.5 is repealed, including the requirement for escrow agreements for retention proceeds on professional services contracts (the $10,000 threshold, 60-day rule, bank escrow agent provisions, and the mandatory escrow agreement form).

The Department of Transportation is explicitly excluded from the new prohibition and remains governed by Section 7202 instead.

A savings clause preserves the rights, duties, and obligations of original contractors and subcontractors under Section 7200 (which governs payment protections on public works of improvement).

REQUIREMENT

New Section 6106.5(c) prohibits a state agency from withholding retention proceeds when making progress payments to a contractor for work performed on a public works contract.

ENFORCEMENT

A state agency must promptly notify the appropriate policy committees of the Legislature if its best interests are compromised because retention was not withheld on a public works contract.

TIMELINE

The new prohibition applies to all public works contracts awarded by a state agency after January 1, 2027.

FISCAL

The fiscal committee designation changed from 'no' to 'yes,' indicating the amended bill now has a state fiscal impact.

03/16/26 - Amended Assembly → 04/28/26 - Amended Assembly · 6 edits · Apr 28, 2026

MODERATE

The April 2026 amendment fundamentally changes AB 1885 from a complete ban on state agencies withholding retention proceeds to a capped approach limiting retention to 3.5 percent of progress payments for specified state agencies (including Water Resources, Parks and Recreation, and Corrections and Rehabilitation). A sunset date of January 1, 2032 was added, and the new provision was renumbered from Section 6106.5 to Section 7202.5, placing it alongside existing public works retention law rather than in the professional services chapter.

SCOPE

The core policy shifted from a total prohibition on withholding retention proceeds to a cap of 3.5 percent of each progress payment. The March version said state agencies 'shall not withhold retention proceeds'; the April version says retention 'shall not exceed 3.5 percent of the payment.'

The new provision was moved from Section 6106.5 (professional services chapter) to a new Section 7202.5 (public works chapter), and now explicitly operates 'notwithstanding Section 7201,' which sets the existing general 5 percent retention cap for public works contracts.

The legislative digest now specifically names the Department of Water Resources, the Department of Parks and Recreation, and the Department of Corrections and Rehabilitation as the state agencies subject to the 3.5 percent cap, making clear this is not a blanket rule for all state agencies.

TIMELINE

A sunset provision was added: the section remains in effect only until January 1, 2032, and is automatically repealed on that date. The March version had no expiration.

ENFORCEMENT

The requirement to notify legislative policy committees was narrowed: instead of notifying when 'retention was not withheld,' agencies must now notify specifically about 'the 3.5-percent limitation on retention proceeds imposed by subdivision (c).'

FISCAL

The fiscal committee vote changed from 'no' to 'yes,' indicating the amendment introduced a new fiscal impact that requires fiscal committee review, likely because the 3.5 percent cap will reduce retention funds available to state agencies compared to the prior 5 percent allowance.

Floor votes

How they voted

No floor votes recorded yet.

Full legislative history

Actions timeline

Total actions

Key actions

Committee

Amendments

May 14, 2026

Lower · Passed

In committee: Held under submission.

lower

May 6, 2026

Committee

In committee: Set, first hearing. Referred to APPR. suspense file.

lower

Apr 29, 2026

Committee

Re-referred to Com. on APPR.

lower

Apr 28, 2026

Lower · Passed

Read second time and amended.

lower

Apr 27, 2026

Introduced

From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 16. Noes 0.) (April 22).

lower

Apr 8, 2026

Lower · Passed

In committee: Set, first hearing. Hearing canceled at the request of author.

lower

Mar 17, 2026

Committee

Re-referred to Com. on G.O.

lower

Mar 16, 2026

Introduced

From committee chair, with author's amendments: Amend, and re-refer to Com. on G.O. Read second time and amended.

lower

Mar 16, 2026

Committee

Referred to Com. on G.O.

lower

Feb 13, 2026

Lower · Passed

From printer. May be heard in committee March 15.

lower

1 primary · 0 co-sponsors