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Effective Jan 1: Treatment of Retention on Projects over $500,000

Construction Law Update:

Effective January 1, 2020: Treatment of Retention on Projects over $500,000

All owners, contractors and subcontractors should be aware of new laws effective January 1, 2020 regarding the withholding of retainage on construction projects in Oregon.

For construction contracts entered into on or after January 1, 2020 that include a contract price more than $500,000, amounts deducted as retainage must be put into an interest-bearing escrow account.  Interest on the retainage amount accrues from the date the payment request is approved until the date the retainage is paid to the contractor or subcontractor to which it is due.

This new law applies to both public improvement projects (pursuant to ORS 279C.570(2)) and private construction projects (pursuant to ORS 701.420(2)(b)).  It also applies regardless of which party is withholding the retainage – the contracting agency, owner, contractor or subcontractor.

For public improvement projects, contractors working on projects with a contract price of less than $500,000 may also continue to opt to have the contracting agency place the retainage in an interest-bearing account.  There does not appear to be an analogous rule for private construction projects.

The prior version of OAR 137-049-0820 (a regulation implementing requirements of the Public Contracting Code) provided that “earnings” from an interest-bearing account would “accrue to the contractor.”  While this express direction is not found in the new version of OAR 137-049-0820 or the new laws cited above (either for public or private construction contracts), a current rule relating to the Oregon Department of Transportation (“ODOT”) provides that interest on retainage from ODOT projects continues to accrue to the contractor.  See OAR 731-007-0290(3).

Given the rationale behind the use of retention and the fact that retention is technically tied to work already performed on a project, it is likely the legislature intended for the interest on retention amounts to accrue to the contractor.

Click here to print a copy of this update.

If you would like additional information, please contact Darien Loiselle or Stephanie Holmberg with Schwabe Williamson & Wyatt, 503-222-9981.

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