Last year, my colleague Matthew Berry wrote for the Daily Journal of Commerce an article that described the Oregon Legislature’s failed attempt to address the issues linked to the “escrow account” requirement included in House Bill 2415, which was enacted in 2019. Under that requirement in ORS 701.420(2)(b), retainage on private and public construction projects with contract prices exceeding $500,000 was required to be placed in an “interest-bearing escrow account.”

The concept of retainage, also called retention, is well-accepted in the construction industry. To reduce the risk that a contractor will fail to perform its contractual obligations in a timely and full manner, an owner can withhold a percentage of payment (that is, retainage) from progress payments to contractors until construction has been satisfactorily completed.

Notwithstanding its shortcomings, House Bill 2415’s intent reflects valid critiques of retainage. The use of it can, and often does, place significant financial strain on contractors, particularly subcontractors who perform work early in the construction process. They may be unable to recover their complete contract price until many months later, when the overall project reaches designated contractual milestones. As a result, such companies are essentially financing a portion of the total cost of construction through interest-free retainage on labor, equipment, and materials until the job has been completed to the satisfaction of the owner. This is particularly harmful on larger, multiyear projects.

Not surprisingly, subcontractor associations supported the escrow account requirement since retainage (and the interest on retainage) was not being timely paid. Opponents of the bill worried, however, that an escrow requirement would create administrative issues by, among other things, adding complexity and cost. Unfortunately, those concerns quickly turned out to be a reality for many.

Following passage of HB 2415 and implementation of the escrow requirement, many financial institutions proved unwilling to open escrow accounts for retainage without charging substantial fees — fees that often exceeded the amount of retainage interest. Claim disputes over retainage quickly expanded from whether it (and how much) was owed to whether retainage was being held in a statutorily compliant “escrow account” — and whether the owner, contractor, or subcontractor should be responsible for paying associated “escrow account” fees.

Recognizing these issues, the Oregon Legislature introduced House Bill 2870 during the 2023 legislative session. As presented, the bill proposed to amend the retainage framework by eliminating the “escrow account” requirement and otherwise entitling contractors and subcontractors to submit a retainage bond (also called a release of retainage bond) in lieu of the retainage on all construction projects. These amendments would have made Oregon’s retainage laws like the longstanding framework in Washington state (RCW 39.08.010, 60.28.011). The bond in lieu of retainage option would allow contractors and subcontractors to avoid waiting to recover their complete contract price until after the project was completed. Instead, if a contractor or subcontractor submitted a retainage bond, the owner or contractor could assert retainage-related claims directly against the retainage bond itself.

Despite broad support and favorable testimony, the Oregon Legislature was unable to pass HB 2870 before the conclusion of the 2023 session. Perhaps building off momentum gained during last year’s session, the Legislature looked to take up the escrow account requirement issue again. House Bill 4006 was introduced in 2024 with nearly identical text to that of HB 2870. Like its predecessor, HB 4006 eliminates the escrow account requirement and provides contractors and subcontractors an option to submit a retainage bond in lieu of all retainage on construction projects.

At any time before final payment for work on large commercial structures or public improvement contracts, a subcontractor may submit a surety bond to the contractor and request release of that portion of retainage that pertains to the subcontractor. This newly created option for subcontractors generally addresses the longstanding critiques of retainage and allows subcontractors to obtain full payment for their work before the project is complete. The benefits of the retainage bond option for subcontractors will be particularly appreciated on projects that span multiple years when the subcontractor performs work only in the early stages.

HB 4006 also creates an alternative to a retainage bond while avoiding the pitfalls of the escrow requirement. If a contractor or subcontractor does not deposit a retainage bond, the company may elect to have the owner deposit the accumulated retainage in an interest-bearing account with a bank, or pay interest on the retainage at the rate of 2 percent plus the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank on the date the retainage is paid. So even if a surety bond is not obtained by the contractor or subcontractor, owners will no longer be required to place retainage in an interest-bearing escrow account.

House Bill 4006 received unanimous approval in both the House and Senate, and Gov. Tina Kotek signed it into law on March 7. It was enacted on an emergency basis, so it became effective immediately.

Josh Dennis is a Schwabe, Williamson & Wyatt shareholder. He focuses his practice on real estate and construction. Contact him at 503-796-2985 or jdennis@schwabe.com.

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. None of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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The pandemic has shined a bright light on the importance of safety and health in the workplace. While most employers are well aware of the rules that they are required to follow when it comes to safety and health, many have not thought about what to do when an OSHA inspector arrives at the workplace.

Here in Oregon, with some exceptions, most employers fall under the jurisdiction of Oregon Occupational Safety and Health (Oregon OSHA). As part of its mission of improving workplace safety and health in the state, Oregon OSHA is tasked with enforcing standards and regulations related to safety and health. This mission is, at least in part, accomplished through inspections of workplaces, and issuance of citations and assessment of penalties for any violations found during those inspections.

ORS 654.067 provides Oregon OSHA with the right to enter, at reasonable times, any establishment under its jurisdiction. An inspection can be triggered for a number of different reasons. These include a complaint from an employee or a public citizen, a referral from another agency, or an accident or fatality that is reported to Oregon OSHA.

Also, Oregon OSHA conducts throughout the year programmed inspections based on a list of all employers in the state. The order of the list is generally based on the recognized hazards within the industry: the greater the hazards, the higher the priority for a programmed inspection.

And finally, an OSHA inspector can open up an inspection immediately and at any time upon witnessing a condition that could cause death or serious physical injury. An example of this would be an Oregon OSHA inspector witnessing an employee on a roof without proper fall protection.

Employers should conduct their operations and train their employees to work under the assumption that an inspection can occur at any time. Accordingly, preparation is critical. With that in mind, here are five steps that an employer can take today to be better prepared for its next OSHA inspection:

1. Identify the person or persons who will serve as the “Employer Representative” during an OSHA inspection.

Employers have a right to have an “Employer Representative” present during an inspection, and OSHA inspectors are required to wait a reasonable time (not to exceed 45 minutes) for an Employer Representative to arrive on site before beginning an inspection. Oftentimes, however, an inspector will arrive on site, ask to speak to the person in charge of the site, and begin the inspection. This will likely be a manager or superintendent, but it might not be the best person to represent the company during an inspection. Every company should have a person or persons designated to serve as the Employer Representative, and multiple persons should be designated when there are several jobsites or locations that a single person cannot reach within that 45-minute period.

2. Create a plan for when an OSHA inspector arrives on site, and train employees accordingly.

When an OSHA inspector arrives on site, employees should know who the designated Employer Representative is and they should notify that person immediately. Also, if applicable, develop a quick safety training that can be given to visitors – including OSHA inspectors – when they arrive on site. This will demonstrate that the company is proactive about safety and has a firm understanding of the hazards at its workplace.

3. Make sure that injury or illness records are up to date and that the Employer Representative knows where those records are kept.

Every OSHA inspection will include a request for Oregon OSHA-300 logs, the total hours worked, the average number of employees for each ‎year, and a roster of current employees‎. Keeping these up to date and readily available will minimize the risk of a recordkeeping violation.

4. Conduct random safety audits of the worksite(s). If violations are found during an audit, they should be documented and disciplinary action should be taken in accordance with company policy.

You can have the greatest training program in the world, but if an OSHA inspector determines that a violation occurred, that training program alone will not help prevent a citation. In addition to a training program, employers should conduct regular, random safety audits, and be ready to consistently discipline employees for violations of work rules. Effective training, audits and discipline policies will not only increase safety in a workplace, but also potentially help an employer avoid an OSHA citation altogether.

5. Adopt the habit of documentation in regard to safety and health issues.

If a company happens to receive an OSHA citation, the importance of documentation in a response against that citation cannot be overstated. Safety rules, employee training, safety meetings, job hazard analyses, safety audits and disciplinary action (even if only a verbal warning) should all be documented.

In sum, solid preparation and consultation with an attorney familiar with OSHA’s rules and inspection procedures can ensure that an employer’s next inspection is less disruptive and possibly help prevent citations.

Josh Dennis is an attorney with Schwabe, Williamson & Wyatt. Contact him at 503-796-2985 or jdennis@schwabe.com. This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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