4.4 Change Orders, Progress Payments & Contract Administration

Change Orders, Progress Payments & Contract Administration

Change Orders Must Be Written and Signed Before Work Starts

HVAC jobs rarely go exactly as originally scoped — a homeowner relocates the outdoor condenser to satisfy a homeowners association (HOA) setback rule, or a technician discovers the existing ductwork cannot be reused once a wall is opened. California law addresses this reality directly. Under B&P Code §7159.5, with the extra-work change order mechanics detailed further in §7159.6, extra work or a change order becomes part of the enforceable contract only once it is prepared in writing and signed by both the contractor and the homeowner before work covered by that change order begins.

A compliant change order must state:

• The scope of the extra work or change,
• The price to be added to or subtracted from the original contract, and
• Any effect on the payment schedule or completion date.

A homeowner cannot be forced to accept unwanted extra work, and a contractor who proceeds with unauthorized extra work without a signed change order risks being unable to collect for it beyond what equitable remedies allow to prevent the homeowner's unjust enrichment — the same limited-recovery concept that applies to a defective HIC.

Example: mid-project, a homeowner asks the crew to move the new heat pump's outdoor unit to satisfy an HOA setback requirement, adding $850 in labor and $300 in additional conduit and disconnects. Before that work starts, the contractor and homeowner sign a change order raising the total contract price from $22,000 to $23,150 and noting a two-day schedule impact.

Progress Payments Must Track the Value of Work Performed

Beyond the capped down payment described in Section 4.1, every subsequent progress payment must be stated in dollars and cents and tied to a specific, described phase of work completed or materials delivered to the site. A contractor can never request or accept payment that exceeds the value of work actually performed up to that point — getting ahead of the job is a statutory violation, not just poor practice.

Example Progress Payment Schedule for a $22,000 System and Duct Replacement

Retention: The New 5% Cap on Private Works, Effective 2026

Retention is a percentage withheld from each progress payment as security that the contractor will complete the work and correct defects, released after final completion and often after a warranty or lien-clearing period. Retention is more common on larger commercial and multifamily jobs than on a straightforward residential HIC, but C-20 contractors bidding larger private projects need to know about a major, recent change: under Civil Code §8811, for private-works contracts entered into on or after January 1, 2026, retention withheld from any single progress payment — and total retention withheld over the life of the contract — cannot exceed 5% of that payment or of the total contract price. The statute also includes a flow-down rule: the retention percentage a general contractor withholds from a subcontractor cannot exceed the percentage the owner is withholding from the general contractor on that same project.

Before this change took effect, private-works retention in California was fully negotiable between the parties, and it commonly ran higher, often around 10%, since — unlike public works, which have long been capped at 5% under Public Contract Code §7201 — there was no statutory ceiling on private jobs. Contracts entered into before January 1, 2026 are not retroactively affected by the new cap.

Contract Administration Best Practices

Good paperwork habits are the difference between a smooth job and a costly dispute. Recommended practices for a C-20 contractor's job file include:

• Keep the fully executed original contract and every signed change order together in one job file.
• Track billing against a schedule of values, so each invoice maps to a specific completed phase.
• Document milestone completion with dated photos or a homeowner sign-off before invoicing that phase.
• Collect conditional lien releases at each progress payment and an unconditional release at final payment, using the statutory forms in Civil Code §§8132-8138.
• Retain the complete job file — contract, permits, change orders, payment records, and warranty documents — for at least as long as CSLB's own complaint-filing windows under B&P Code §7091, four years for patent defects and ten years for latent structural defects, since that paperwork is exactly what protects a contractor if a dispute surfaces years later.