Getting paid on Oregon public works: monthly progress payments, 10 days to pay subs, and retainage capped at 5%

Oregon's public contracting code, ORS chapter 279C, has detailed rules for how public agencies pay contractors and how contractors pay their subs. They apply to public improvement contracts let by Oregon contracting agencies, including ODOT.

Agency payments

ORS 279C.570 states that "all payments due on a public improvement contract and owed by a contracting agency must be paid promptly," and no agency is exempt. Agencies must make progress payments monthly as work progresses, based on approved estimates of completed work. A progress payment is not acceptance of the work.

If a payment is late, the agency owes interest on it, not counting retainage. Interest starts 30 days after the agency receives the invoice or 15 days after it approves the payment, whichever is earlier. The rate is three times the discount rate on 90-day commercial paper at the Federal Reserve Bank for Oregon's district, capped at 30%. Interest is paid automatically; the agency cannot make the contractor ask for it.

If a first-tier subcontractor asks in writing, the prime must send it, within 10 days, a copy of the portion of any invoice, payment request or agency pay document that relates specifically to the sub's labor or materials.

If an invoice is defective or disputed in good faith, the agency must tell the contractor within 15 days and say why. A corrected invoice returned within seven days does not delay payment unless interest is also paid.

Paying subcontractors

ORS 279C.580 requires every public improvement contract to make the prime include, in each subcontract with a first-tier sub or supplier:

• a payment clause requiring the prime to pay the sub for satisfactory performance within 10 days out of amounts the agency pays the prime;
• a standard form the sub can use to apply for payment;
• a commitment to use the same payment form and procedures for the whole subcontract, unless the prime gives 45 days' written notice of a change; and
• an interest penalty clause if the prime does not pay within 30 days after the agency pays it.

The same clauses must flow down to lower-tier subcontracts. No interest penalty is owed if the only reason for late payment is that the payer was not paid on time. In a documented good faith dispute, a prime or sub may withhold up to 150% of the disputed amount without penalty, if the subcontract allows it and notice is given. A dispute between a prime and a first-tier sub does not make the agency a party.

Retainage

Under ORS 279C.555, retainage on public improvement contracts follows ORS 701.420, which lets an owner, contractor or sub withhold no more than 5% of the contract price of the work completed. The final payment carries interest of 1% a month starting 30 days after the work is completed and accepted. When a party says its work is complete, the party it works for has 15 days to accept it or list remaining work. When a prime pays a sub in full, including retainage, the owner must release the matching amount of the prime's retainage within 15 days of notice.

Under ORS 279C.560, a contractor may offer bonds, securities or a surety bond instead of cash retainage, and the agency must accept them, subject to limited grounds for rejection. Contractors must accept the same kinds of instruments from their subs.

What to do

Subcontractors on public jobs should read the payment clause in their subcontract and track the date the prime is paid. Primes should keep payment forms consistent and give the required notices before withholding. This is a summary, not legal advice; see our Oregon lien and bond guide.