ORS 279C.580
Contractor’s relations with subcontractors


(1)

A contractor may not request payment from the contracting agency of any amount withheld or retained in accordance with subsection (5) of this section until the contractor has determined and certified to the contracting agency that the subcontractor has determined and certified to the contracting agency that the subcontractor is entitled to the payment.

(2)

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 under subsection (3) or (4) of this section does not constitute a dispute to which the contracting agency is a party. The contracting agency may not be included as a party in any administrative or judicial proceeding involving such a dispute.

(3)

Each public improvement contract awarded by a contracting agency must include a clause that requires the contractor to include in each subcontract for property or services the contractor enters into with 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 the subcontract within 10 days out of amounts the contracting agency pays to the contractor under the public improvement contract.

(b)

A clause that requires the contractor to provide a first-tier subcontractor with a standard form that the first-tier subcontractor may use as an application for payment or as another method by which the subcontractor may claim a payment due from the contractor.

(c)

A clause that requires the contractor, except as otherwise provided in this paragraph, to use the same form and regular administrative procedures for processing payments during the entire term of the subcontract. A contractor may change the form or the regular administrative procedures the contractor uses for processing payments if the contractor:

(A)

Notifies the subcontractor in writing at least 45 days before the date on which the contractor makes the change; and

(B)

Includes with the written notice a copy of the new or changed form or a description of the new or changed procedure.

(d)

An interest penalty clause that obligates the contractor, if the contractor does not pay the first-tier subcontractor within 30 days after receiving payment from the contracting agency, to pay the first-tier subcontractor an interest penalty on amounts due in each payment the contractor does not make in accordance with the payment clause included in the subcontract under paragraph (a) of this subsection. A contractor or first-tier subcontractor is not 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 contracting agency or contractor when payment was due. The interest penalty:

(A)

Applies to the period that begins on the day after the required payment date and that ends on the date on which the amount due is paid; and

(B)

Is computed at the rate specified in ORS 279C.515 (Conditions concerning payment of claims by public officers, payment to persons furnishing labor or materials and complaints) (2).

(4)

A public improvement contract that the contracting agency awards shall obligate the contractor, in each of the contractor’s subcontracts, to require the first-tier subcontractor to include a payment clause and an interest penalty clause that conforms to the standards of subsection (3) of this section in each of the first-tier subcontractor’s subcontracts and to require each of the first-tier subcontractor’s subcontractors to include such clauses in the first-tier subcontractors’ subcontracts with each lower-tier subcontractor or supplier.

(5)

Intentionally left blank —Ed.

(a)

The clauses required by subsections (3) and (4) of this section do not 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 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 the parties to the subcontract agree upon, 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; and

(C)

Permit such withholdings without incurring any obligation to pay a late payment interest penalty if:
(i)
A notice that conforms to the standards of subsection (8) of this section has been previously furnished to the subcontractor; and
(ii)
A copy of any notice a contractor issues under sub-subparagraph (i) of this subparagraph has been furnished to the 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.

(C)

Third-party claims filed or reasonable evidence that claims will be filed.

(D)

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

(E)

Damage to the contractor or subcontractor.

(F)

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

(6)

If, after applying to a contracting agency for payment under a public improvement contract but before paying a subcontractor for the subcontractor’s performance covered by the application, a contractor discovers that all or a portion of the payment otherwise due the subcontractor is subject to withholding from the subcontractor in accordance with the subcontract, the contractor shall:

(a)

Furnish to the subcontractor a notice conforming to the standards of subsection (8) of this section as soon as practicable after ascertaining the cause for the withholding, but before the due date for payment to the subcontractor;

(b)

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

(c)

Reduce the progress payment to the subcontractor 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 for the payment must be recovered from the contracting agency because of a reduction under paragraph (f)(A) of this subsection; or

(B)

Seven days after the contractor recovers the funds from the contracting agency;

(f)

Notify the 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 on which the withholding began and ended; and

(g)

Be obligated to pay to the contracting agency an amount equal to interest on the withheld payments computed in the manner provided in ORS 279C.570 (Prompt payment policy) from the 11th day after receiving the withheld amounts from the 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.

(7)

Intentionally left blank —Ed.

(a)

If a contractor, after paying a first-tier subcontractor, receives from a supplier or subcontractor of the first-tier subcontractor a written notice asserting a deficiency in the first-tier subcontractor’s performance under the public improvement contract for which the contractor may be ultimately liable and the contractor determines that all or a portion of future payments otherwise due the first-tier subcontractor is subject to withholding in accordance with the subcontract, the contractor may, without incurring an obligation to pay a late payment interest penalty under subsection (6)(e) of this section:

(A)

Furnish to the first-tier subcontractor a notice that conforms to the standards of subsection (8) of this section as soon as practicable after making the 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 receiving satisfactory written notice that the identified subcontract performance deficiency has been corrected, the contractor shall pay the amount withheld under paragraph (a)(B) of this subsection to the first-tier subcontractor, or shall incur an obligation to pay a late payment interest penalty to the first-tier subcontractor computed at the rate specified in ORS 279C.570 (Prompt payment policy).

(8)

A written notice of any withholding must be issued to a subcontractor, with a copy to the contracting agency, that specifies:

(a)

The amount to be withheld;

(b)

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

(c)

The remedial actions the subcontractor must take in order to receive payment of the amounts withheld.

(9)

Except as provided in subsection (2) of this section, this section does 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 a contractor’s late payment or nonpayment or a subcontractor’s deficient performance or nonperformance.

(10)

A contractor’s obligation to pay a late payment interest penalty to a subcontractor under the clause included in a subcontract under subsection (3) or (4) of this section is not an obligation of the contracting agency. A contract modification may not be made for the purpose of providing reimbursement of a late payment interest penalty. A cost reimbursement claim may not include any amount for reimbursement of a late payment interest penalty. [2003 c.794 §151; 2005 c.103 §34; 2012 c.4 §2]

Source: Section 279C.580 — Contractor’s relations with subcontractors, https://www.­oregonlegislature.­gov/bills_laws/ors/ors279C.­html.

Notes of Decisions

Under former similar statute (ORS 279.445)

Surety’s right to be paid from specific proceeds of publicly funded project is superior to interest of contractor’s secured creditor. In re Comcraft, 206 B.R. 551 (Bkrtcy. D. Or. 1997)

279C.005
Definitions
279C.010
Applicability
279C.100
Definitions for ORS 279C.100 to 279C.125
279C.105
Contracts for architectural, engineering, photogrammetric mapping, transportation planning or land surveying and related services
279C.107
Public disclosure of contents of proposals for architectural, engineering, photogrammetric mapping, transportation planning or land surveying services
279C.110
Selection procedures for consultants to provide services
279C.115
Direct contracts for services of consultants
279C.120
Selection procedure for related services
279C.125
Architectural, engineering, photogrammetric mapping, transportation planning and land surveying services selection process for local public improvements procured through state agency
279C.300
Policy on competition
279C.305
Least-cost policy for public improvements
279C.306
Administrative enforcement of least-cost policy for public improvements
279C.307
Limitations in procurement of personal services
279C.308
Community benefit contract
279C.310
Limitation on contracting agency constructing public improvement
279C.315
Waiver of damages for unreasonable delay by contracting agency against public policy
279C.320
Contracts for construction other than public improvements
279C.325
Limitation on contracting agency awarding contract to nonresident education service district
279C.330
“Findings” defined
279C.332
Definitions for ORS 279A.065, 279C.307, 279C.335, 279C.337 and 279C.380
279C.335
Competitive bidding requirement
279C.337
Procurement of constructions manager/general contractor services
279C.340
Contract negotiations
279C.345
Specifications for contracts
279C.350
Exemption procedure
279C.355
Evaluation of public improvement projects not contracted by competitive bidding
279C.360
Requirement for public improvement advertisements
279C.365
Requirements for solicitation documents and bids and proposals
279C.370
First-tier subcontractor disclosure
279C.375
Award and execution of contract
279C.380
Performance bond
279C.385
Return or retention of bid security
279C.390
Exemption of contracts from bid security and bonds
279C.395
Rejection of bids
279C.400
Competitive proposals
279C.405
Requests for information, interest or qualifications
279C.410
Receipt of proposals
279C.412
Competitive quotes for intermediate procurements
279C.414
Requirements for competitive quotes
279C.430
Prequalification of bidders
279C.435
Effect of prequalification by Department of Transportation or Oregon Department of Administrative Services
279C.440
Disqualification from consideration for award of contracts
279C.445
Appeal of disqualification
279C.450
Appeal procedure for decision to deny, revoke or revise prequalification
279C.460
Action by or on behalf of adversely affected bidder or proposer
279C.465
Action against successful bidder
279C.470
Compensation for contractor on contract declared void by court
279C.500
“Person” defined
279C.505
Conditions concerning payment, contributions, liens, withholding, drug testing
279C.510
Demolition contracts to require material salvage
279C.515
Conditions concerning payment of claims by public officers, payment to persons furnishing labor or materials and complaints
279C.520
Condition concerning hours of labor
279C.525
Provisions concerning environmental and natural resources laws
279C.527
Inclusion of amount for green energy technology or woody biomass energy technology in public improvement contract
279C.528
State Department of Energy requirements and specifications
279C.530
Condition concerning payment for medical care and providing workers’ compensation
279C.533
Condition concerning employment of apprentices to perform percentage of work hours that workers in apprenticeable occupations perform on public improvements
279C.534
Advisory committee for monitoring implementation of apprenticeship condition in public improvement contracts
279C.535
Condition concerning steel material
279C.537
Condition concerning use of diesel engines in motor vehicles used in performing certain public improvement contracts
279C.540
Maximum hours of labor on public contracts
279C.545
Time limitation on claim for overtime
279C.550
“Retainage” defined
279C.555
Withholding of retainage
279C.560
Form of retainage
279C.565
Limitation on retainage requirements
279C.570
Prompt payment policy
279C.580
Contractor’s relations with subcontractors
279C.585
Authority to substitute undisclosed first-tier subcontractor
279C.590
Complaint process for substitutions of subcontractors
279C.600
Right of action on payment bond or public works bond of contractor or subcontractor
279C.605
Notice of claim
279C.610
Action on contractor’s public works bond or payment bond
279C.615
Preference for labor and material liens
279C.620
Rights of person providing medical care to employees of contractor
279C.625
Joint liability when payment bond not executed
279C.650
“Labor dispute” defined
279C.655
Extension and compensation when work suspended
279C.660
Compensation when contract terminated due to public interest
279C.665
Contractual provisions for compensation when contract terminated due to public interest
279C.670
Application of ORS 279C.650 to 279C.670
279C.800
Definitions for ORS 279C.800 to 279C.870
279C.805
Policy
279C.807
Workforce diversity for public works projects
279C.808
Rules
279C.810
Exemptions
279C.815
Determination of prevailing wage
279C.817
Determination of applicability of prevailing wage rate
279C.820
Advisory committee to assist commissioner
279C.825
Fees
279C.827
Division of public works project
279C.829
Agreement with other state to pay less than prevailing rate of wage
279C.830
Provisions concerning prevailing rate of wage in specifications, contracts and subcontracts
279C.835
Notifying commissioner of public works contract subject to prevailing wage
279C.836
Public works bond
279C.838
Applicability of state and federal rates of wage
279C.840
Payment of prevailing rate of wage
279C.845
Certified statements regarding payment of prevailing rates of wage
279C.850
Inspection to determine whether prevailing rate of wage being paid
279C.855
Liability for violations
279C.860
Ineligibility for public works contracts for failure to pay or post notice of prevailing rates of wage
279C.865
Civil penalties
279C.870
Civil action to enforce payment of prevailing rates of wage
279C.875
Criminal liability for intentional failure to pay prevailing wage
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