PassUp

1. One-liner

Turns a refused extra into a certified SB 440 demand and tracks the 30-day silence that denies it.

2. Trend signal — why now?

Two California statutes took effect on 1 January 2026 and rewrote how private construction money moves.

SB 440 — the Private Works Change Order Fair Payment Act — imposes a statutory claim procedure on private nonresidential projects and mixed-use residential over four stories. The shape that matters:

• A claim is a written demand sent by registered or certified mail, return receipt requested, with supporting documentation.
• The owner has 30 days to review and respond in writing, identifying disputed and undisputed portions.
• If the owner does not respond in 30 days, the claim is automatically denied.
• Undisputed amounts must be paid within 60 days of the written response.
• Unpaid undisputed amounts accrue interest at 2% per month — 24% annually. Disputed amounts later deemed due accrue the same interest retroactively to the original due date.
• The claimant may demand an informal conference, which must occur within 30 days; the owner then has 10 days to state remaining disputes.
• Failure to pay triggers a statutory stop-work right on 10 days’ written notice, without penalty — reachable roughly 40 days after denial.
• These rights cannot be waived. An attempted waiver is void and against public policy. The authorisation sunsets 1 January 2030 unless renewed.

SB 61 separately caps retention at 5% on most private works, down the whole chain — owner-to-prime, prime-to-sub, sub-to-lower-tier.

The non-waivable part is what makes this a product rather than a contract-drafting exercise. A GC cannot paper over it in the subcontract. Every private-works sub in California acquired a set of rights on 1 January 2026 that run on clocks, and clocks are software.

And the American Arbitration Association flagged the defect that makes it urgent: subcontractors depend on the contractor to submit claims upstream, the statute does not define valid reasons for non-submission, and subs have no direct enforcement mechanism if the contractor fails to advocate for their claim. The GC holds the sub’s claim, the sub cannot see whether it moved, and the sub’s interest meter is the one that stays off.

Provenance:

• Signal 1 (demand): SB 440 creates a non-waivable claim procedure with a 30-day owner response, automatic denial on silence, 2%/month interest and stop-work rights; AAA notes subcontractors have no direct enforcement mechanism when the contractor fails to pass a claim upstream — https://www.adr.org/news-and-insights/mediation-mag-how-californias-fair-payment-act-will-reshape-construction-disputes-in-2026/ and https://www.smithcurrie.com/publications/common-sense-contract-law/new-california-construction-laws-for-2026/ — observed 2026-08-29
• Signal 2 (feasibility): The statute’s mechanics are dates, certified-mail artefacts and written statements at each step — no integration into GC systems is required, because the sub’s own outbound demand starts every clock — https://www.procopio.com/resource/new-sb-440-requirements — observed 2026-08-29
• Signal 3 (economic): Incumbents price away from this buyer. Procore runs $15K–80K/yr on an annual-construction-volume model and is widely described as not worth the cost for subcontractors; Levelset charges roughly $349 per lien filing, establishing per-document willingness to pay in the same wallet — https://www.scanmanifold.com/blog-posts/procore-pricing-2026-contractors and https://www.siteline.com/compare/levelset — observed 2026-08-29 Category: Regulatory arbitrage

3. The opportunity

Construction software sells to whoever signs the biggest cheque, and that is the general contractor. Procore is a GC system of record priced on annual construction volume. Siteline and Levelset serve subs but aim at billing and lien rights — the paperwork that recurs every month on every job.

SB 440 created something different: an episodic, adversarial, deadline-driven procedure that only fires when a sub has been refused. It is too rare to justify a Procore seat and too legal-shaped for a billing tool, so it currently falls to a lawyer at $350–500/hr or, far more often, to nobody at all.

The gap is precise. The statute’s most valuable feature to a sub is that owner silence is an event. Do nothing and day 30 converts silence into a denial that unlocks interest and stop-work leverage. But that only works if somebody is counting, and the sub who most needs the clock — the two-truck electrical or drywall outfit — is the one least likely to be running a calendar against certified-mail receipts.

Worse, the sub usually is not the one holding the pen. Their claim goes to the GC, who decides whether to pass it to the owner. AAA’s read is that the statute gives the sub no enforcement mechanism there. So the sub’s exposure is a claim that may be sitting in a GC’s inbox, unsent, while the sub assumes a clock is running that never started.

That is the product: make the sub’s demand real, dated and provable, and make the GC’s silence visible.

4. Target market

• Primary customer: Owner-operators of specialty trade subcontractor firms in California — electrical, plumbing, HVAC, drywall, glazing, concrete — with 5–60 field staff and $1M–$15M annual revenue, working private commercial and mixed-use projects. The buyer is the owner or the office manager who chases money, not a project engineer.
• Why they buy: They are refused extras routinely and eat most of them because pursuing one costs more than it recovers. SB 440 changed the arithmetic — 24% annualised interest and a stop-work right are real leverage — but only for a sub who executes the procedure correctly and on time.
• Rough TAM reasoning: California has tens of thousands of licensed specialty trade contractors; the serviceable slice is those doing private nonresidential work of meaningful size. A few thousand firms is enough. At $150–300/mo, 500 customers is a $1M+ business, and the statute runs to 2030.
• Why now for them: The rights did not exist before 1 January 2026 and cannot be signed away. Contracts entered this year are the first cohort where the clocks apply.

5. Product sketch (MVP)

• Claim builder — describe the refused extra in plain language or a voice note; PassUp produces the SB 440 written demand with supporting documentation attached and the statutory framing at each step.
• Certified mail, executed — sends by registered/certified mail with return receipt through a mail API, then stores the receipt as the dated proof that starts the clock.
• The 30-day silence watch — counts the owner’s response window and tells the sub the day silence becomes an automatic denial, in plain terms: “No response. Your claim is denied as of today. Interest starts. You can be at stop-work notice in 10 days.”
• Escalation prompts on statutory dates — informal conference demand, the 30-day conference window, the owner’s 10-day statement, mediation. Each step arrives as a pre-drafted letter, not a reminder.
• Interest ledger — accrues 2%/month on unpaid undisputed amounts and shows the running number, including retroactive accrual on disputed amounts later deemed due.
• Pass-up receipt — when the claim goes to a GC rather than the owner, PassUp records what was sent and when, and nags for confirmation it moved upstream. If the GC goes quiet, the sub has a dated record that they asked.
• Retention check (SB 61) — flags progress payments where retention withheld exceeds the new 5% cap.

6. AI angle — what’s load-bearing

AI does the translation that currently requires a lawyer: turning a foreman’s account of a refused extra — a voice note, a photo of the changed condition, a text thread with the super — into a structured written demand that identifies the work, the basis for entitlement, the amount, and the documentation, in the register a statute expects.

That is the barrier. A sub does not fail to file because they lack a calendar; they fail because writing a formal demand feels like legal work they will get wrong, so it never leaves the truck. Collapsing that from a $400 lawyer call to a four-minute voice note is the product.

Remove the AI and this is a reminder app with letter templates — which is roughly what exists and roughly why nobody uses it. The clock is necessary but the clock is not the hard part.

7. Localization angle (if any)

N/A as a language play — but this is aggressively jurisdiction-local, which is the same wedge in a different coat. The product encodes one statute in one state. That narrowness is the moat early on and the expansion path later: prompt-payment and claim statutes vary by state, and each new one is a new SKU into the same trade wallet.

Spanish-language voice input for the claim builder is worth building early. A large share of California field supervision reports in Spanish, and the person who witnessed the changed condition is often not the person who writes the letter.

8. Business model — path to $1M–$5M ARR

• Pricing: $149/mo solo and small crews; $299/mo standard (multiple concurrent jobs, Spanish input, pass-up tracking); $599/mo for firms running 15+ active private jobs. Certified mail billed at cost plus a small margin.
• ACV: ~$2,800 blended.
• To $1M ARR: ~360 customers at $299/mo. Within reach of one focused salesperson working trade associations in a single state.
• To $5M ARR: ~1,500 customers, which needs either deep California penetration plus two or three additional states with comparable statutes, or an upsell into the adjacent money-chasing work — retention release, prompt-payment demands, lien deadlines — that recurs monthly rather than episodically.
• Expansion path: Price on active private jobs, not seats. A sub with 20 live jobs has 20 clocks. Add states as separate entitlements.

Honest caveat on the revenue shape: the trigger is episodic. A sub refused twice a year may churn between disputes. The fix is to make PassUp the place retention and payment applications are tracked continuously, so the claim engine is the reason they buy and the payment tracking is the reason they stay. That is an assumption, not a proven retention curve, and it is the main reason this scores 72 rather than higher.

9. Go-to-market wedge — first 100 customers

• The CSLB licence database is the list. California publishes licensed contractors by classification and location. Filter to specialty trades — C-10 electrical, C-36 plumbing, C-20 HVAC, C-9 drywall — in the commercial-heavy metros. That is a targeted, addressable list of thousands with names and addresses, not a vague segment.
• Sell the interest number, not the software. Cold outreach that leads with “you are owed 24% annualised on undisputed amounts a GC is sitting on, and silence past day 30 is a denial you can act on” is a specific claim about their money. Send it by physical mail — this buyer opens mail and ignores SaaS email — with a one-page timeline of the statute.
• Trade associations run the trust. Western Electrical Contractors Association, the Finishing Contractors Association, plumbing and mechanical groups all run chapter meetings and member education, and all of them need SB 440 content in 2026 because their members are asking. Offer the education session; the session is the funnel.
• Construction attorneys are the referral channel. A lawyer does not want a $9,000 change-order dispute — it is unprofitable and it annoys the client. Being the tool they hand out for small claims, and the source of the tidy documented file when a claim is big enough to litigate, makes them a repeat referrer.
• Own the search term. “SB 440 deadline”, “SB 440 claim form”, “owner didn’t respond to change order California” are queries that did not exist before 2026 and will be searched by exactly one kind of person.

10. Build complexity — justification

Low. No integration into GC systems is required, which is what usually makes construction software hard — every clock in this statute is started by the sub’s own outbound demand, so the product only needs the sub’s side. The pieces are a document generator, a certified-mail API, a date engine, and an interest calculation. Six to eight weeks for a competent pair.

The genuine work is not engineering, it is statutory precision: the letters must be right, the day counts must be right, and the escalation ladder must match the statute. That is a domain problem solved by paying a California construction attorney to review the templates, and it is the item most likely to be underestimated.

11. Gating checklist

Gate	Pass?	Note
Legal in target market	✅	Document preparation and deadline tracking. Must be scoped carefully — see risk flags on UPL.
Ethical — no harm / dark patterns	✅	Helps small firms exercise rights the legislature deliberately made non-waivable.
Market exists (evidence above)	✅	Statute enacted and in force; incumbents priced away from this buyer.
1–5 person team can build this	✅	Low complexity, no third-party integrations required.
Launchable with <$50K / ₹40L	✅	Main cost is legal review of templates.

12. Feasibility score

Axis	Weight	Score	Notes
Problem intensity	20	16/20	Real money and non-waivable rights, but episodic — it hurts sharply, not daily.
Demand evidence	15	11/15	Statute, penalties and incumbent pricing gap are documented. No verbatim customer quotes obtained — see risk flags.
Build feasibility	15	13/15	No integrations; 6–8 weeks. Statutory accuracy is the real work.
Distribution clarity	15	11/15	CSLB list and trade associations are concrete and named; conversion on cold trade outreach is unproven.
Revenue mechanics	15	11/15	Pricing sits credibly between Levelset’s per-filing fees and Procore’s tier. Retention past a resolved dispute is the open question.
Time to first revenue	10	8/10	Sellable pre-build to a sub with a live refused claim; 6–10 weeks realistic.
Defensibility	10	2/10	Templates plus a date engine. Copyable in a quarter. Only real moat is being the name subs and their attorneys say.
Total	100	72/100

13. Qualitative modifiers

Founder-fit tags

sales-heavy · domain-expertise-required

This is not a build problem. It is a “can you get a drywall contractor in Fresno to trust you with a payment dispute” problem, and it wants someone who can sit in association meetings.

Key assumptions to validate (3–5)

1. Assumption: Subs are actually being refused extras often enough to pay monthly. How to test: 25 phone interviews with C-10/C-36/C-20 owners — how many refused extras in the last 12 months, what was the median value, what did they do about it.
2. Assumption: The GC pass-up gap is felt as a real grievance, not a theoretical one. How to test: ask the same 25 whether they have had a claim they believe never reached the owner, and whether they could prove they submitted it.
3. Assumption: They will pay a subscription rather than a per-claim fee. How to test: present both at $299/mo and ~$400/claim and see which they reach for — Levelset’s per-filing pricing suggests per-event may win, which would change the whole revenue model.
4. Assumption: Document preparation stays clear of unauthorised practice of law. How to test: written opinion from a California construction attorney before launch, not after.

Risk flags

1. Unauthorised practice of law. Generating legal demand letters and advising on statutory deadlines sits near the UPL line. The mitigation is self-help document preparation with the sub as author and decision-maker, plus an attorney referral path — but this needs a real opinion, and it is the single most likely thing to break the product.
2. Evidence gap in this proposal. I did not obtain verbatim subcontractor complaints about SB 440. The statute, penalties and incumbent pricing are well sourced; the felt pain is inferred from the structure of the law and AAA’s commentary. That is why confidence is Medium and why assumption 1 is the first thing to test.
3. Episodic usage drives churn. A sub with no active dispute has no reason to open the app. If retention past a resolved claim is bad, this is a per-claim service priced as a subscription, and the ARR maths above is wrong.
4. Thin moat. Nothing here is hard to copy. Siteline or Levelset could ship an SB 440 module and arrive with the customer list already loaded.
5. Sunset and single-jurisdiction dependency. The authorisation expires 1 January 2030 unless renewed, and the entire wedge is one state’s statute.

14. Structured verdict

Score:                  72/100
Verdict:                GO
Confidence:             Medium
Best-fit builder:       Sales-driven founder with California construction relationships, plus one engineer
Time to revenue:        6–10 weeks
Capital to launch:      $12–18K (mostly attorney review of templates and UPL opinion)
Top 3 assumptions to validate first:
  1. Refusal frequency and median claim value — 25 interviews with CA specialty trade owners
  2. Subscription vs per-claim willingness to pay — present both, watch which they reach for
  3. UPL boundary — written opinion from a California construction attorney before launch
Kill criteria:
  - Abandon if fewer than 8 of 25 interviewed subs had a refused extra worth >$5,000 in the last 12 months
  - Abandon if a construction attorney says the claim-drafting flow cannot be structured as self-help
  - Abandon if month-3 retention among subs whose dispute resolved falls below 50%

15. Next step — 1-week validation sprint

• Day 1–2: Pull the CSLB licence database and build a list of 300 C-10/C-36/C-20/C-9 firms in Los Angeles, Orange and San Diego counties doing commercial work. Draft the one-page SB 440 timeline mailer.
• Day 3–4: Call 25. One question set: how many extras were refused in the last 12 months, what was the biggest one worth, what did you do, and did you ever suspect a claim never reached the owner. Do not pitch — ask.
• Day 5: Put the two pricing shapes in front of the ten most engaged and take a $299 deposit for a founding slot.

Falsifiable outcome: at least 8 of 25 report a refused extra over $5,000 in the last 12 months, and at least 3 of 10 put money down. Below either number, the pain is real but not purchased, and this goes back in the drawer.