Construction Contractors and Contracts

ORS 701.435
Deposits in lieu of cash retainage


When a contractor on a public contract deposits bonds, securities or other instruments under ORS 279C.560 (Form of retainage) (4), if the subcontract price exceeds $50,000 and constitutes more than 10 percent of the cost of the public contract, a subcontractor on the public contract may deposit bonds, securities or other instruments with the contractor or in a bank or trust company for the contractor to hold for the contractor’s benefit in lieu of moneys held as retainage. If the contractor accepts the bonds, securities or other instruments deposited as provided in this subsection, the contractor shall reduce the moneys held as retainage in an amount equal to the value of the bonds, securities and other instruments and pay the amount of the reduction to the subcontractor in accordance with ORS 701.420 (Partial payment) and 701.430 (Performance bond). Interest or earnings on the bonds, securities or other instruments shall accrue to the subcontractor.


When a contractor on a public contract elects to have the public contracting agency deposit the accumulated retainage in an interest-bearing account under ORS 279C.560 (Form of retainage) (5), the contractor, within 30 days following payment of the final amount due for construction of the public improvement, shall pay to each subcontractor who performed work on the construction the subcontractor’s proportional share of the interest earnings that accrued to the contractor as a result of the election. A subcontractor’s share of the total amount of interest earnings under this subsection shall be determined by the proportion that the amount of retainage withheld from the subcontractor bears to the amount of retainage withheld from the contractor and the length of time the retainage was withheld from the subcontractor. A share of the interest earnings shall be paid to a subcontractor under this subsection only when:


Retainage is withheld from the subcontractor for more than 60 days after the day on which the first partial payment was due the subcontractor under the terms of the subcontract; and


The amount of interest earnings due the subcontractor exceeds $100.


If the contractor incurs additional costs as a result of the exercise of an option described in subsection (1) or (2) of this section, the contractor may recover the costs from the subcontractor by reducing the final payment. As work on the subcontract progresses, the contractor shall, upon demand, inform the subcontractor of all accrued additional costs.


Bonds, securities and other instruments deposited or acquired in lieu of retainage, as permitted by this section, must be of a character approved by the Director of the Oregon Department of Administrative Services, including but not limited to:


Bills, certificates, notes or bonds of the United States.


Other obligations of the United States or agencies of the United States.


Obligations of a corporation wholly owned by the federal government.


Indebtedness of the Federal National Mortgage Association.


General obligation bonds of the State of Oregon or a political subdivision of the State of Oregon.


Irrevocable letters of credit issued by an insured institution, as defined in ORS 706.008 (Additional definitions for Bank Act). [1977 c.767 §2; 1983 c.690 §16; 2003 c.794 §320; 2009 c.568 §2]
Note: See note under 701.410 (Definitions).
§§ 701.410 to 701.440

Atty. Gen. Opinions

Operative date of the Act concerning contracts and subcontracts, (1975) Vol 37, p 812; constitutionality of the provisions, (1976) Vol 38, p 472

Chapter 701

Notes of Decisions

This is a remedial statute made for the protection of the building business and of people dealing with builders who might be irresponsible; it should be read as a whole and liberally construed to accomplish its purpose. Robinson v. Builders Bd., 20 Or App 340, 531 P2d 752 (1975)

Atty. Gen. Opinions

Lack of authority for director to appoint executive secretary for board, (1971) Vol 35, p 930; inapplicability of this chapter to business of construction or installation of fences, sidewalks, septic tanks, wells and underground sprinkling systems, (1972) Vol 35, p 1278; mobile home as personal or real property under this chapter, (1972) Vol 36, p 41; application of Homebuilders Law to mobile homes, (1978) Vol 38, p 693


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Jun. 26, 2021