Chapter 689 Oregon Laws 1999

Session Law

AN ACT

HB 2895

Relating to public contracts; creating new provisions; amending ORS 279.027, 279.029, 279.314, 279.420, 279.435, 279.445 and 701.135; and prescribing an effective date.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 279.314 is amended to read:

279.314. (1) Every public contract shall [also] contain a clause or condition that, if the contractor fails, neglects or refuses to make prompt payment of any claim for labor or services furnished to the contractor or a subcontractor by any person in connection with the public contract as such claim becomes due, the proper officer or officers representing the state, county, school district, municipality, municipal corporation or subdivision thereof, as the case may be, may pay such claim to the person furnishing the labor or services and charge the amount of the payment against funds due or to become due the contractor by reason of such contract.

(2) Every public contract for a public improvement shall contain a clause or condition that, if the contractor or a first-tier subcontractor fails, neglects or refuses to make payment to a person furnishing labor or materials in connection with the public contract for a public improvement within 30 days after receipt of payment from the public contracting agency or a contractor, the contractor or first-tier subcontractor shall owe the person the amount due plus interest charges commencing at the end of the 10-day period that payment is due under ORS 279.445 (4) and ending upon final payment, unless payment is subject to a good faith dispute as defined in ORS 279.445. The rate of interest charged to the contractor or first-tier subcontractor on the amount due shall equal three times the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district that includes Oregon on the date that is 30 days after the date when payment was received from the public contracting agency or from the contractor, but the rate of interest shall not exceed 30 percent. The amount of interest may not be waived.

(3) Every public contract for a public improvement and every contract related to the public contract shall contain a clause or condition that, if the contractor or a subcontractor fails, neglects or refuses to make payment to a person furnishing labor or materials in connection with the public contract, the person may file a complaint with the Construction Contractors Board, unless payment is subject to a good faith dispute as defined in ORS 279.445.

[(2)] (4) The payment of a claim in the manner authorized in this section shall not relieve the contractor or the contractor's surety from obligation with respect to any unpaid claims.

SECTION 2. ORS 279.435 is amended to read:

279.435. (1) It is the policy of this state that all payments due on a public contract for a public improvement and owed by a public contracting agency shall be paid promptly. No public contracting agency shall be exempt from the provisions of this section.

(2) Public contracting agencies shall make progress payments on the contract monthly as work progresses on a public contract for a public improvement. Payments shall be based upon estimates of work completed that are approved by the public contracting agency. A progress payment shall not be considered acceptance or approval of any work or waiver of any defects therein. The public contracting agency shall pay to the contractor interest [at the rate of one and one-half percent per month] on the progress payment, not including retainage, due the contractor. The interest shall commence 30 days after receipt of the invoice from the contractor or 15 days after the payment is approved by the agency, whichever is the earlier date. The rate of interest charged to the public contracting agency on the amount due shall equal three times the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district that includes Oregon on the date that is 30 days after receipt of the invoice from the contractor or 15 days after the payment is approved by the agency, whichever is the earlier date, but the rate of interest shall not exceed 30 percent.

(3) Interest shall be paid automatically when payments become overdue. The public contracting agency shall document, calculate and pay any interest due when payment is made on the principal. Interest payments shall accompany payment of net due on public contracts. The public contracting agency shall not require the contractor to petition, invoice, bill or wait additional days to receive interest due.

(4) In instances when an invoice is filled out incorrectly, or when there is any defect or impropriety in any submitted invoice or when there is a good faith dispute, the public contracting agency shall so notify the contractor within 15 days stating the reason or reasons the invoice is defective or improper or the reasons for the dispute. A defective or improper invoice, if corrected by the contractor within seven days of being notified by the agency, shall not cause a payment to be made later than specified in this section unless interest is also paid.

(5) If requested in writing by a first-tier subcontractor, the contractor, within 10 calendar days after receiving the request, shall send to the first-tier subcontractor a copy of that portion of any invoice, request for payment submitted to the public contracting agency or pay document provided by the public contracting agency to the contractor specifically related to any labor or materials supplied by the first-tier subcontractor.

[(5)] (6) Payment of interest may be postponed when payment on the principal is delayed because of disagreement between the public contracting agency and the contractor. Whenever a contractor brings formal administrative or judicial action to collect interest due under this section, the prevailing party shall be entitled to costs and reasonable attorney fees.

[(6)] (7) A public contracting agency may reserve as retainage from any progress payment on a public contract an amount not to exceed five percent of the payment. As work progresses, an agency may reduce the amount of the retainage and the agency may eliminate retainage on any remaining monthly contract payments after 50 percent of the work under the contract is completed if, in the agency's opinion, such work is progressing satisfactorily. Elimination or reduction of retainage shall be allowed only upon written application by the contractor, which application shall include written approval of the contractor's surety; except that when the contract work is 97-1/2 percent completed the agency may, at its discretion and without application by the contractor, reduce the retained amount to 100 percent of the value of the contract work remaining to be done. Upon receipt of a written application by the contractor, the agency shall respond in writing within a reasonable time.

[(7)] (8) The retainage held by a public contracting agency shall be included in and paid to the contractor as part of the final payment of the contract price. The public contracting agency shall pay to the contractor interest at the rate of one and one-half percent per month on the final payment due the contractor, interest to commence 30 days after the work under the contract has been completed and accepted and to run until the date when the final payment is tendered to the contractor. The contractor shall notify the public contracting agency in writing when the contractor considers the work complete and the public contracting agency shall, within 15 days after receiving the written notice, either accept the work or notify the contractor of work yet to be performed on the contract. If the public contracting agency does not within the time allowed notify the contractor of work yet to be performed to fulfill contractual obligations, the interest provided by this subsection shall commence to run 30 days after the end of the 15-day period.

[(8)(a)] (9)(a) The public contracting agency shall pay, upon settlement or judgment in favor of the contractor regarding any dispute as to the compensation due a contractor for work performed under the terms of a public contract, the amount due plus interest at the rate of two times the [federal discount interest rate as established by the Twelfth Federal Reserve Bank at the time of settlement or judgment but not to exceed 18 percent,] discount rate, but not to exceed 30 percent, on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district that includes Oregon on the date and accruing from the later of:

(A) The due date of any progress payment received under the contract for the period in which such work was performed; or

(B) Thirty days after the date on which the claim for the payment under dispute was presented to the public contracting agency by the contractor in writing or in accordance with applicable provisions of the contract.

(b) Such interest shall be added to and not made a part of the settlement or judgment.

SECTION 2a. ORS 279.445 is amended to read:

279.445. (1) This section applies to contracts for contractors of public improvements.

(2) A contractor shall not request payment from the public contracting agency of any amount withheld or retained in accordance with subsection (6) of this section until such time as the contractor has determined and certified to the public contracting agency that the subcontractor has determined and certified to the public contracting agency that the subcontractor is entitled to the payment of such amount.

(3) A dispute between a contractor and first-tier subcontractor relating to the amount or entitlement of a first-tier subcontractor to a payment or a late payment interest penalty under a clause included in the subcontract pursuant to subsection (4) or (5) of this section does not constitute a dispute to which the public contracting agency is a party. The public contracting agency shall not be included as a party in any administrative or judicial proceeding involving such a dispute.

(4) Each contract awarded by a public contracting agency shall include a clause that requires the contractor to include in each subcontract for property or services entered into by the contractor and a first-tier subcontractor, including a material supplier, for the purpose of performing a construction contract:

(a) A payment clause that obligates the contractor to pay the first-tier subcontractor for satisfactory performance under its subcontract within 10 days out of such amounts as are paid to the contractor by the public contracting agency under such contract; and

(b) An interest penalty clause that obligates the contractor, if payment is not made within 30 days after receipt of payment from the public contracting agency, to pay to the first-tier subcontractor an interest penalty on amounts due in the case of each payment not made in accordance with the payment clause included in the subcontract pursuant to paragraph (a) of this subsection. A contractor or first-tier subcontractor shall not be obligated to pay an interest penalty if the only reason that the contractor or first-tier subcontractor did not make payment when payment was due is that the contractor or first-tier subcontractor did not receive payment from the public contracting agency or contractor when payment was due. The interest penalty shall be:

(A) For the period beginning on the day after the required payment date and ending on the date on which payment of the amount due is made; and

(B) Computed at the rate specified in ORS [279.435] 279.314 (2).

(5) The contract awarded by the public contracting agency shall further require the contractor to include in each of its subcontracts, for the purpose of performance of such contract condition, a provision requiring the first-tier subcontractor to include a payment clause and an interest penalty clause conforming to the standards of subsection (4) of this section in each of its subcontracts and to require each of its subcontractors to include such clauses in their subcontracts with each lower-tier subcontractor or supplier.

(6)(a) The clauses required by subsections (4) and (5) of this section are not intended to impair the right of a contractor or a subcontractor at any tier to negotiate, and to include in the subcontract, provisions that:

(A) Permit the contractor [of] or a subcontractor to retain, in the event of a good faith dispute, an amount not to exceed 150 percent of the amount in dispute from the amount due a subcontractor under the subcontract without incurring any obligation to pay a late payment interest penalty, in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties consider appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond;

(B) Permit the contractor or subcontractor to make a determination that part or all of the subcontractor's request for payment may be withheld in accordance with the subcontract agreement; and

(i) A notice conforming to the standards of subsection (9) of this section has been previously furnished to the subcontractor; and

(ii) A copy of any notice issued by a contractor pursuant to sub-subparagraph (i) of this subparagraph has been furnished to the public contracting agency.

(b) As used in this subsection, "good faith dispute" means a documented dispute concerning:

(A) Unsatisfactory job progress.

(B) Defective work not remedied.

(D) Failure to make timely payments for labor, equipment and materials.

(E) Damage to prime contractor or subcontractor.

(F) Reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract sum.

(7) If, after making application to a public contracting agency for payment under a contract but before making a payment to a subcontractor for the subcontractor's performance covered by such application, a contractor discovers that all or a portion of the payment otherwise due such subcontractor is subject to withholding from the subcontractor in accordance with the subcontract agreement, the prime contractor shall:

(a) Furnish to the subcontractor a notice conforming to the standards of subsection (9) of this section as soon as practicable upon ascertaining the cause giving rise to a withholding, but prior to the due date for subcontractor payment;

(b) Furnish to the public contracting agency, as soon as practicable, a copy of the notice furnished to the subcontractor pursuant to paragraph (a) of this subsection;

(c) Reduce the subcontractor's progress payment by an amount not to exceed the amount specified in the notice of withholding furnished under paragraph (a) of this subsection;

(d) Pay the subcontractor as soon as practicable after the correction of the identified subcontract performance deficiency;

(e) Make such payment within:

(A) Seven days after correction of the identified subcontract performance deficiency unless the funds therefor must be recovered from the public contracting agency because of a reduction under paragraph (f)(A) of this subsection; or

(B) Seven days after the contractor recovers such funds from the public contracting agency;

(f) Notify the public contracting agency upon:

(A) Reduction of the amount of any subsequent certified application for payment; or

(B) Payment to the subcontractor of any withheld amounts of a progress payment, specifying:

(i) The amounts of the progress payments withheld under paragraph (a) of this subsection; and

(ii) The dates that such withholding began and ended; and

(g) Be obligated to pay to the public contracting agency an amount equal to interest on the withheld payments computed in the manner provided in ORS 279.435 from the 11th day after receipt of the withheld amounts from the public contracting agency until:

(A) The day the identified subcontractor performance deficiency is corrected; or

(B) The date that any subsequent payment is reduced under paragraph (f)(A) of this subsection.

(8)(a) If a contractor, after making payment to a first-tier subcontractor, receives from a supplier or subcontractor of the first-tier subcontractor a written notice asserting a deficiency in such first-tier subcontractor's performance under the contract for which the contractor may be ultimately liable and the contractor determines that all or a portion of future payments otherwise due such first-tier subcontractor is subject to withholding in accordance with the subcontract agreement, the contractor may, without incurring an obligation to pay a late payment interest penalty under subsection (7)(e) of this section:

(A) Furnish to the first-tier subcontractor a notice conforming to the standards of subsection (9) of this section as soon as practicable upon making such determination; and

(B) Withhold from the first-tier subcontractor's next available progress payment or payments an amount not to exceed the amount specified in the notice of withholding furnished under subparagraph (A) of this paragraph.

(b) As soon as practicable, but not later than 10 days after receipt of satisfactory written notification that the identified subcontract performance deficiency has been corrected, the contractor shall pay the amount withheld under paragraph (a)(B) of this subsection to such first-tier subcontractor, or shall incur an obligation to pay a late payment interest penalty to such first-tier subcontractor computed at the rate specified in ORS 279.435.

(9) A written notice of any withholding shall be issued to a subcontractor, with a copy to the public contracting agency of any such notice issued by a prime contractor, specifying:

(a) The amount to be withheld;

(b) The specified causes for the withholding under the terms of the subcontract; and

(10) Except as provided in subsection (3) of this section, this section shall not limit or impair any contractual, administrative or judicial remedies otherwise available to a contractor or a subcontractor in the event of a dispute involving late payment or nonpayment by a contractor or deficient subcontractor performance or nonperformance by a subcontractor.

(11) A contractor's obligation to pay a late payment interest penalty to a subcontractor pursuant to the clause included in a subcontract under subsection (4) or (5) of this section is not intended to be an obligation of the public contracting agency for such late payment interest penalty. A contract modification shall not be made for the purpose of providing reimbursement of such late payment interest penalty. A cost reimbursement claim shall not include any amount for reimbursement of such late payment interest penalty.

SECTION 3. ORS 279.027 is amended to read:

279.027. (1) All bids made to the public contracting agency pursuant to ORS 279.015 and 279.025 shall be:

(a) In writing.

(b) Filed with the person designated for receipt of bids by the public contracting agency.

(2)(a) Within four working hours of the date and time of the deadline when the bids were due to the public contracting agency for a public improvement, a bidder shall submit to the public contracting agency a disclosure of any first-tier subcontractor that will be furnishing labor or materials in connection with the public improvement and whose contract value is equal to or greater than:

(A) Five percent of the total project bid or $15,000, whichever is larger; or

(B) $500,000, regardless of the percentage of the total project bid.

(b) The disclosure of first-tier subcontractors shall include:

(A) The name and address of each subcontractor;

(B) The registration number assigned to the subcontractor by the Construction Contractors Board if the subcontractor is required to have a certificate of registration issued by the board; and

(C) The amount of the contract of the subcontractor.

(c) For each contract to which this subsection applies, the public contracting agency shall designate a deadline for submission of bids that has a date and time that is on Monday through Thursday or that is on Friday prior to 12 noon.

(d) This subsection shall apply only to public improvements with a contract value of more than $75,000.

[(2)] (3) After having been opened the bids shall be filed for public inspection.

[(3)] (4) A surety bond, irrevocable letter of credit issued by an insured institution as defined in ORS 706.008, cashier's check or certified check of the bidder shall be attached to all bids as bid security unless the contract for which the bid is submitted has been exempted from this requirement pursuant to ORS 279.033. Such security shall not exceed 10 percent of the amount bid for the contract.

SECTION 4. ORS 279.029 is amended to read:

279.029. (1) After the bids are opened as required by ORS 279.027, and after a determination is made that a contract is to be awarded, the public contracting agency shall award the contract to the lowest responsible bidder.

(2) In determining the lowest responsible bidder, a public contracting agency shall[,]:

(a) If the contract is for a public improvement, check the list created by the Construction Contractors Board under section 9 of this 1999 Act for bidders who are not qualified to hold a contract for a public improvement; and

(b) For the purpose of awarding the contract, add a percent increase on the bid of a nonresident bidder equal to the percent, if any, of the preference given to that bidder in the state in which the bidder resides.

(3) The Oregon Department of Administrative Services on or before January 1 of each year shall publish a list of states that give preference to in-state bidders with the percent increase applied in each such state. The public contracting agency may rely on the names of states and percentages so published in determining the lowest responsible bidder without incurring any liability to any bidder.

(4) The successful bidder shall:

(a) Promptly execute a formal contract.

(b) If the contract is for a public improvement, execute and deliver to the public contracting agency a good and sufficient bond, to be approved by the public contracting agency, in a sum equal to the contract price for the faithful performance of the contract. In lieu of a surety bond, the public contracting agency may permit the successful bidder to submit a cashier's check or certified check in an amount equal to 100 percent of the contract price.

(5) In cases of emergency, or where the interest or property of the public contracting agency probably would suffer material injury by delay or other cause, the requirement of furnishing a good and sufficient bond for the faithful performance of any public contract may be excused, if a declaration of such emergency is made and concurred in by all members of the governing board of the public contracting agency.

(6) As used in this section:

(a) "Lowest responsible bidder" means the lowest bidder who has substantially complied with all prescribed public bidding procedures and requirements and who:

(A) Has not been disqualified by the public contracting agency under ORS 279.037; or

(B) Is not on the list established by the Construction Contractors Board pursuant to section 9 of this 1999 Act.

(b) "Resident bidder" means a bidder that has paid unemployment taxes or income taxes in this state during the 12 calendar months immediately preceding submission of the bid, has a business address in this state and has stated in the bid whether the bidder is a "resident bidder" pursuant to this subsection.

SECTION 5. Section 6 of this 1999 Act is added to and made a part of ORS 279.310 to 279.321.

SECTION 6. A prime contractor whose bid is accepted may substitute a first-tier subcontractor that was not disclosed under ORS 279.027 (2)(a) in the following circumstances:

(1) When the subcontractor disclosed under ORS 279.027 (2)(a) fails or refuses to execute a written contract after having had a reasonable opportunity to do so after the written contract that is based upon the general terms, conditions, plans and specifications for the public improvement project or the terms of that subcontractor's written bid is presented to the subcontractor by the prime contractor.

(2) When the disclosed subcontractor becomes bankrupt or insolvent.

(3) When the disclosed subcontractor fails or refuses to perform the subcontract.

(4) When the disclosed subcontractor fails or refuses to meet the bond requirements of the prime contractor that had been identified prior to the bid submittal.

(5) When the prime contractor demonstrates to the public contracting agency that the subcontractor was disclosed as the result of an inadvertent clerical error.

(6) When the disclosed subcontractor does not hold a certificate of registration from the Construction Contractors Board and is required to be registered with the board.

(7) When the prime contractor determines that the work performed by the disclosed subcontractor is substantially unsatisfactory and not in substantial accordance with the plans and specifications, or that the subcontractor is substantially delaying or disrupting the progress of the work.

(8) When the disclosed subcontractor is ineligible to work on a public improvement pursuant to the applicable statutory provisions.

SECTION 7. Section 6 of this 1999 Act and the amendments to ORS 279.027, 279.029, 279.314, 279.420, 279.435 and 279.445 by sections 1 to 4 and 11 of this 1999 Act shall first apply to public contracts first advertised on or after the effective date of this 1999 Act.

SECTION 8. Section 9 of this 1999 Act is added to and made a part of ORS chapter 701.

SECTION 9. (1) The Construction Contractors Board shall begin an action to determine whether a contractor or a subcontractor shall not be considered qualified to hold or participate in a public contract for a public improvement upon receipt of information from a public contracting agency or from any person who supplied labor or materials in connection with a public contract for a public improvement indicating that the contractor or subcontractor has not made payment to persons who supplied labor or materials within 60 days after the date when the payment was received by the contractor or subcontractor and that the payment was not a subject of a good faith dispute as defined in ORS 279.445.

(2) If the board determines after notice and opportunity for hearing that a contractor or a subcontractor did not make payment to persons who supplied labor or materials in connection with a public contract for a public improvement within 60 days after the date when payment was received by the contractor or subcontractor, the board shall place the contractor or the subcontractor on the list of persons who have been determined not to be qualified to hold or participate in a public contract for a public improvement. The board may not place a contractor or subcontractor on the list if the only reason that the contractor or subcontractor did not make payment to a person when payment was due is that the contractor or subcontractor did not receive payment from the public contracting agency, contractor or subcontractor when payment was due. The contractor or subcontractor shall remain on the list for a period of not less than six months from the date when the board received the information under subsection (1) of this section.

(3) If the board determines that the claim made against a contractor or subcontractor was made in bad faith or was false, the person filing the bad faith or false claim shall be placed on the list of persons who have been determined not to be qualified to hold or participate in a public contract for a public improvement.

(4) The board shall create and maintain a list of contractors and subcontractors who have been determined not to be qualified to hold or participate in a public contract for a public improvement under subsection (2) of this section. The list may include any corporation, partnership or other business entity of which the contractor or subcontractor is an owner, shareholder or officer of the business or was an owner or officer of the business. The board shall provide access to the list to all public contracting agencies, contractors and subcontractors.

SECTION 10. ORS 701.135 is amended to read:

701.135. (1) The Construction Contractors Board may revoke, suspend or refuse to issue or reissue a certificate of registration and the board may assess a civil penalty as provided in ORS 701.992 if it determines after notice and opportunity for hearing:

(a) That the registrant or applicant has violated ORS 701.055.

(b) That the registrant or applicant has failed to pay in full any final judgment on claims adjudged by the board or by a court of competent jurisdiction referred to in ORS 701.085.

(d) That the registrant has knowingly assisted an unregistered person to act in violation of this chapter.

(e) That a lien was filed on a structure under ORS 87.010 to 87.060 and 87.075 to 87.093 because the registrant or applicant wrongfully failed to perform a contractual duty to pay money to the person claiming the lien.

(f) That the registrant has knowingly provided false information to the board.

(g) That the registrant has worked without a construction permit where such permit is required and such work resulted in a claim filed with the board. For purposes of this paragraph, "construction permit" includes a building permit, electrical permit, mechanical permit or plumbing permit.

(h) That the number of registered contractors working together on the same task on the same job site, where one of the contractors is registered exempt under ORS 701.035 (2)(b), exceeded the following:

(A) Two sole proprietors;

(B) One partnership;

(D) One limited liability company.

(i) That the registrant or applicant has not, within 90 days after the date when payment was received from the public contracting agency, or contractor in the case of a subcontractor, made payment to any person for supplying labor or materials contracted for with a public contract for a public improvement plus the amount of interest due.

(j) That the registrant or applicant has repeatedly reported bad faith or false claims of nonpayment against contractors or subcontractors.

(2)(a) The administrator of the board, in accordance with administrative rules adopted by the board and after setting forth specific reasons for such findings, may suspend or refuse to renew a registration without hearing in any case where the administrator finds a serious danger to the public welfare, including but not limited to:

(A) Lack of a surety bond required by ORS 701.085;

(B) Lack of liability insurance required by ORS 701.105;

(D) Conduct as a construction contractor that is dishonest or fraudulent.

(b) If the registrant or applicant demands a hearing within 90 days after the date of notice to the registrant or applicant of such suspension or refusal to renew, then a hearing must be granted to the registrant or applicant as soon as practicable after such demand, and the administrator shall issue an order pursuant to such hearing as required by ORS 183.310 to 183.550 confirming, altering or revoking the administrator's earlier order. Such a hearing need not be held where the order of suspension or refusal to renew is accompanied by or is pursuant to, a citation for violation which is subject to judicial determination in any court of this state, and the order by its terms will terminate in case of final judgment in favor of the registrant or applicant.

(3) In addition to all other remedies, when it appears to the board that a person has engaged in, or is engaging in, any act, practice or transaction which violates the provisions of this chapter, the board may direct the Attorney General or the district attorney of the county in which the act, practice or transaction occurs, to apply to the court for an injunction restraining the person from violating the provisions of this chapter. An injunction shall not issue for failure to maintain the list provided for in ORS 701.055 (11) unless the court determines that the failure is intentional.

SECTION 11. ORS 279.420 is amended to read:

279.420. (1) Money retained by a public contracting agency under ORS 279.435 [(6)] (7) shall be:

(a) Retained in a fund by the public contracting agency and paid to the contractor in accordance with ORS 279.435; or

(b) At the option of the contractor, paid to the contractor in accordance with subsection (3) or (4) of this section and in a manner authorized by the Director of the Oregon Department of Administrative Services.

(2) If the public agency incurs additional costs as a result of the exercise of the options described in subsection (1) of this section, the agency may recover such costs from the contractor by reduction of the final payment. As work on the contract progresses, the agency shall, upon demand, inform the contractor of all accrued costs.

(3) The contractor may deposit bonds or securities with the public contracting agency or in any bank or trust company to be held in lieu of the cash retainage for the benefit of the public contracting agency. In such event the public agency shall reduce the retainage in an amount equal to the value of the bonds and securities and pay the amount of the reduction to the contractor in accordance with ORS 279.435. Interest on such bonds or securities shall accrue to the contractor.

(4) If the contractor elects, the retainage as accumulated shall be deposited by the public contracting agency in an interest-bearing account in a bank, savings bank, trust company or savings association for the benefit of the public contracting agency. When the public contracting agency is an agency of the State of Oregon, the account shall be established through the State Treasurer. Earnings on such an account shall accrue to the contractor.

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

(a) Bills, certificates, notes or bonds of the United States.

(b) Other obligations of the United States or its agencies.

(d) Indebtedness of the Federal National Mortgage Association.

(6) The contractor, with the approval of the public contracting agency, may deposit a surety bond for all or any portion of the amount of funds retained, or to be retained, by the public contracting agency in a form acceptable to the public contracting agency. Such bond and any proceeds therefrom shall be made subject to all claims and liens and in the same manner and priority as set forth for retainage under ORS 279.400 to 279.542. The public contracting agency shall reduce the retainage in an amount equal to the value of the bond and pay the amount of the reduction to the contractor in accordance with ORS 279.435. Whenever a public contracting agency accepts a surety bond from a contractor in lieu of retainage, the contractor shall accept like bonds from any subcontractor or supplier from which the contractor has retainage. The contractor shall then reduce the retainage in an amount equal to the value of the bond and pay the amount of the reduction to the subcontractor or supplier.

SECTION 12. This 1999 Act takes effect on January 1, 2000.

Approved by the Governor July 14, 1999

Filed in the office of Secretary of State July 14, 1999

Effective date January 1, 2000

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