If you’ve ever worked on a state public works contract, you know the frustration: you deliver the work, you meet the schedule, you have a 100% performance and payment bond in place, and the state still holds back 5% of every progress payment for months on end. That’s retention, and in California, it ties up hundreds of millions of dollars that contractors could be putting back into their businesses, their workforce, and their communities.
The original rationale for retention made sense decades ago. Before California required performance and payment bonds on public works, agencies needed a financial backstop to ensure contractors finished the job and paid their subcontractors. Retention was that backstop.
That world no longer exists. Today, California mandates comprehensive performance and payment bonds, typically at 100% of contract value, on virtually all state construction contracts. These bonds guarantee project completion, protect subcontractors and suppliers, and provide financial vetting through the surety underwriting process. In other words: every protection retention was ever meant to provide is already covered by a stronger and more reliable mechanism.
The proof is already in state law: Caltrans, California’s largest public works owner, is prohibited from withholding retention. The Legislature already recognized that retention is unnecessary where modern bonding is in place. But other state agencies haven’t gotten the memo, and contractors are paying the price.
What AB 1885 Does
Assembly Bill 1885, authored by Assemblymember Juan Carrillo and sponsored by AGC of California, eliminates retention withholding on public works contracts at California state agencies. It amends Public Contract Code Section 6106.5 to align the rest of state government with the standard Caltrans already operates under.
The bill doesn’t change bonding requirements. It doesn’t reduce oversight. It simply removes a redundant cash withholding practice that no longer serves any protective purpose, and that costs California contractors real money every year.
Why This Matters to Your Business
For small and mid-sized contractors especially, retention withholding is a significant cash flow burden. When a state agency withholds 5% of every progress payment on a multi-million-dollar project, that’s capital you can’t use to hire workers, purchase equipment, take on additional projects, or grow your business. And unlike performance bonds where the risk of loss is tied to actual contractor failure, retention withholding penalizes every contractor regardless of performance.
The benefits of eliminating retention don’t just flow to contractors. State agencies also bear an administrative burden managing the retention accounts they hold on every active project. AB 1885 simplifies state contracting for everyone.
AGC of California Is Leading This Fight
AGC of California has been at the forefront of modernizing California’s public works contracting system for decades. We’re sponsoring AB 1885 because the status quo is costing our members money for no good reason and because the Legislature has the power to fix it.
As this bill moves through the legislative process, we will need member voices. Legislators respond to constituent contractors who can speak to the real-world impact of retention withholding on their businesses. If you have performed work on a state agency contract and experienced this issue firsthand, we want to hear from you.
Stay tuned for updates on AB 1885’s progress, committee hearings, and ways to engage. Together, we can modernize California’s contracting practices and put that capital back to work where it belongs, in the hands of California’s contractors.
