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Parties are generally free to contract as they see fit. However, as with anything, there are legal limits to what parties can and cannot agree to in their contracts. In Oregon, construction contracts are subject to a wide variety of legal requirements – many that are often ignored or, in some cases, violated with disastrous results.

Following is a brief summary of issues that project owners and contractors should consider when preparing to contract for commercial construction in Oregon. Note that not all aspects of each particular issue are addressed, and other concerns may arise depending on project circumstances.

Contractual attorneys’ fees provisions are reciprocal – ORS 20.096

If a contract includes an attorneys’ fees provision in favor of one party, then either party may recover attorneys’ fees if it prevails in an action under the contract. Any contractual waiver of the protection of this statute is void.

Oregon’s anti-indemnity statute – ORS 30.140

Any provision that requires a person or that person’s surety or insurer to indemnify another against liability for damage arising out of personal injury or property damage caused by the negligence of the party being indemnified is void.

Waiver of owner’s obligation to forward notices of right to a lien – ORS 87.021

If a contract requires a contractor to indemnify an owner from construction liens, an owner has to forward to the contractor any Notice of Right to a Lien received from a potential lien claimant for the indemnity provision to be enforceable as to a lien filed by that lien claimant. This requirement may be waived by contract.

Owner’s obligations to provide sanitary facilities – ORS 654.150-.160

Projects with an estimated cost equal to or greater than $1 million must have adequate sanitary facilities (toilet facilities and facilities for maintaining personal cleanliness). Every construction contract must include a provision stating whether this law applies and which party is responsible for complying with its requirements. If an owner fails to designate which party is responsible for providing the sanitary facilities, the owner may be liable to the contractor for costs (plus interest) incurred in providing such facilities.

Prohibition against indemnity for claims covered by workers’ compensation – ORS 656.018

Any provision that requires an employer who maintains workers’ compensation insurance to indemnify a third party for claims by the employer’s employee is void. For example, any indemnity provision that requires a contractor-employer to indemnify the owner from claims by the contractor’s employee is void.

Retainage restrictions – ORS 701.410-.430

If an owner requires a contractor to provide a performance bond, the owner may withhold no more than 5 percent of the contract price of work completed as retainage. If no performance bond is required, the parties are free to negotiate the amount of retainage. However, Gov. John Kitzhaber recently signed into law Senate Bill 405, which limits retainage to a maximum of 5 percent for all contracts entered into on or after Jan. 1, 2014 – except for contracts with a public agency whose charter requires that more than 5 percent be retained.

Private Prompt Pay Act – ORS 701.620-.635

Oregon’s Private Prompt Pay Act imposes several requirements on a project owner with respect to the timing of payments to the contractor. Although the billing cycle and payment period may be changed, the statute requires that this change be stated on every page of the drawings and specifications in a form substantially similar to the example included in the statute.

Prohibition against contract provisions making the contract subject to the laws of another state – ORS 701.640

Any contract provision that makes a construction contract subject to the laws of another state is void.

Prohibition against contract provisions requiring dispute resolution in another state – ORS 701.640

Any contract provision that makes a dispute arising out of a construction contract subject to dispute resolution in another state is void.

Prohibition against contract provisions stating that a contractor may not suspend or terminate if not timely paid – ORS 701.640

Any contract provision that attempts to waive a contractor’s right to suspend or terminate performance for nonpayment is void.

Contractors and owners would do well to at least consider the above issues and take appropriate steps so that their contracts will be construed as they intended.

Sean Gay is an attorney in the construction and design practice group of Stoel Rives LLP. Contact him at 503-294-9239 or [email protected].