California architects and engineers will get new retention relief on qualifying public projects beginning in 2027. Gov. Gavin Newsom signed SB 1205 on Sept. 20, establishing a 5% limit for covered payments and a release deadline tied to completion of the firm’s contracted services, rather than the completion of the project.
California design professional retention reform addresses both how much a public owner withholds and when the firm receives it. The law applies to specified design-bid-build agreements, with an exception process for substantially complex projects.
What Changes Under SB 1205?
The new Public Contract Code Section 7204 covers design-bid-build contracts that are entered into on or after Jan. 1, 2027, directly between a public entity and a design firm (i.e., a firm legally permitted to practice architecture or engineering). For those projects, retention generally can’t exceed 5% of a payment.
For applicable retention withheld under subdivision (a), the law requires release within 60 days after the firm completes its contractual services, regardless of whether the overall project is complete. The provision focuses on completion of the services the firm agreed to provide, which has been a point of contention with California design pros.
The law also specifies procedures for higher retention. Covered state departments must make a substantially complex project finding before bidding and explain the basis for elevated retention amounts in bid documents. Covered local entities must approve their finding at a properly noticed, normally scheduled public hearing before bidding and disclose the same information.
The finding must explain what makes the project unique and beyond the work that the agency or licensed contractors regularly perform. A general preference for more retention will not satisfy that description.
Why Design Firms Sought the Change
AIA California, which sponsored SB 1205, reported that both legislative houses passed it unanimously. The organization identified a payment imbalance. Some agencies retained a larger share of design professionals’ fees than they withheld from construction contractors.
In its September advocacy update, AIA California connected those withheld fees to everyday business pressures. Uncollected revenue can affect staffing, cash flow, and a firm’s capacity to take on additional work, particularly for small and mid-sized practices. These issues are pervasive throughout the industry, regardless of the firm type or sector.
The organization credited architect Debra Gerod with raising the issue. It described the legislation as an effort to make payment practices more consistent, while preserving flexibility for public agencies managing unusually complex projects.
Does the Law Cover Every Design Agreement?
No. Its scope is direct public-entity agreements for architecture or engineering services under design-bid-build. It does not establish a universal retention rule for every private project or every delivery method.
What Public Owners and Design Firms Should Review
Public procurement staff, firm principals, and contract administrators should review 2027 agreement forms, retention percentages, and service-completion language.
Identify remaining construction-phase services before treating design delivery as completion of the agreement.
Review contract risk allocation alongside payment terms so revisions remain coordinated across the agreement.
Put Payment Terms in the Bigger Contract Picture
Retention is one part of your firm’s agreement. Explore the Architect’s Guide to Contracts to better understand how payment terms, scope of services, and project responsibilities work together.
By Matt Viator, Assistant General Counsel, ACD
ACD Legal Pulse examines the developments shaping construction law, contracts, and project risk. We break down what’s happening, why it matters to AEC professionals, and what your team should consider next.