Oregon’s retainage rules are now simpler — here’s what changed
For years, Oregon contractors on projects over $500,000 had to navigate one of the more confusing corners of the state’s prompt payment law: the 2019 escrow requirement under HB 2415. That rule required any party withholding retainage — owner, contractor, or subcontractor — to deposit those funds into a dedicated interest-bearing escrow account. It sounded reasonable on paper. In practice, industry groups found that these accounts were nearly impossible to open, since most banks weren’t set up to handle them, and lenders on financed projects typically don’t disburse retained funds at all, leaving nothing to actually place in escrow.
That mismatch between the law and how construction financing actually works created years of unresolved compliance questions for owners, contractors, and lenders alike.
The fix: HB 4006
Governor Tina Kotek signed HB 4006 into law after it passed the Oregon House and Senate by unanimous vote, effective for contracts entered into on or after March 7, 2024. The new law repeals the 2019 escrow mandate entirely. In its place, contractors and subcontractors on both public and private projects now have the option to post a retainage surety bond with the owner and lender, allowing them to receive full progress payments without any cash retainage withheld at all.
The change mirrors an approach Washington has used for years — the state expanded its own retainage surety bond option to private construction projects back in 2023 — so Oregon contractors doing cross-border work now see more consistent treatment of retainage between the two states.
What stays the same
The underlying prompt payment framework hasn’t changed. Owners, contractors, and subcontractors can still withhold up to 5% of the contract value as retainage under ORS 701.420, and interest still accrues on late final payments — 1% per month on private contracts, and a formula tied to the Federal Reserve’s commercial paper discount rate on public contracts under ORS 279C.570. What HB 4006 removes is the requirement to physically segregate withheld retainage into an escrow account — a rule that had become, in the words of industry attorneys who tracked it, more of a compliance trap than a contractor protection.
What this means for contractors
If your contracts were signed before March 7, 2024, the old escrow rules may still apply to those specific agreements. For anything new, talk to your surety broker early — posting a retainage bond needs to be arranged at the front end of the contracting process, not after the first pay application is already in.
Source URL: https://woodruffsawyer.com/insights/oregon-repeals-retainage-escrow-requirements
Source URL: https://oregon.public.law/statutes/ors_701.420
Source URL: https://oregon.public.law/statutes/ors_279c.570
