Oregon retainage law: a plain-English guide for contractors

What is retainage in construction?

Retainage (also called retention) is the part of each progress payment the owner holds back until the work is finished. The general contractor usually passes the same percentage down to its subcontractors, so everyone in the chain has money held back.

"5% retainage" means that on a $200,000 pay application, $10,000 is withheld and $190,000 is paid. Over a long job the held amount adds up: on a $4 million subcontract at 5%, $200,000 is sitting with someone else by the end of the work. On your books it's a retainage receivable. On the GC's or owner's books it's retainage payable.

Retainage exists to give the owner leverage to get the work finished and to protect against unpaid subcontractors and suppliers filing liens. It also means contractors finance part of the project with their own earned money, often for a year or more.

The 5% retainage cap in Oregon

Oregon caps retainage at 5 percent. Under ORS 701.420, an owner, contractor or subcontractor may withhold "not more than five percent of the contract price of the work completed." Public agencies are held to the same 5 percent (ORS 279C.570), and subcontract retainage on public jobs follows the same rule (ORS 279C.555).

When a contractor pays a subcontractor in full, retainage included, the owner must pay the contractor an equal amount out of the retainage it's holding.

The Oregon escrow rule and the 2024 change

From 2020 to 2024, Oregon required retainage on contracts over $500,000 to go into an interest-bearing escrow account, on private and public work alike. House Bill 2415 (2019) created the rule for contracts entered on or after January 1, 2020.

House Bill 4006 (2024) removed it. For contracts entered on or after March 7, 2024, there's no statutory escrow requirement. The old rule still governs contracts entered between January 1, 2020 and March 6, 2024. In its place, HB 4006 created the retainage bond.

Nothing stops an owner and contractor from agreeing to an escrow account by contract.

Retainage bonds in Oregon

Under ORS 701.435, a contractor on a large commercial structure or a public improvement contract may give the owner and any lender a surety bond in place of all or part of the retainage, and they must accept it. Withheld retainage is then released.

• Which jobs qualify. A large commercial structure is any non-residential structure that isn't a "small commercial structure" (ORS 701.005). Small commercial structures are roughly 10,000 square feet or less and 20 feet or lower, or a unit of 12,000 square feet or less, or work of $250,000 or less.
• The surety. The bond must come from a surety company authorized in Oregon.
• Bonds flow down. Subcontractors can ask for the same treatment, and a contractor whose bond is accepted must accept like bonds from its subs.
• Public refusals are limited. A public agency can refuse a bond only on a written finding of good cause based on the project, or if a bond isn't commercially available (ORS 279C.560).

Release and interest in Oregon

Type of work: Rule

Private, final payment: Interest of 1% per month on the final payment, starting 30 days after the work is completed and accepted (ORS 701.420)

Private, prompt pay: Final payment due within 7 days after the owner approves the work; 1.5% per month if late (ORS 701.625)

Public: The agency accepts the work or lists what's left within 15 days of notice of completion; 1.5% per month on the final payment starting 30 days after completion and acceptance (ORS 279C.570)

The two private rules overlap, and the statutes don't say how they fit together, so get advice if your final payment is late. On private progress payments, the owner pays within 14 days of a billing, and contractors pay subs within 7 days of being paid, with 1.5 percent per month on late amounts (ORS 701.630).

The money involved is real. $500,000 of retainage held for 18 months earns about $28,500 at 3.7% compounded monthly. Where nothing requires an escrow account, that interest usually stays with whoever holds the money.

A retainage escrow account for Oregon projects

Oregon no longer requires escrow on new contracts, but owners and contractors can still agree to one. Retain-Edge puts retainage in a segregated escrow account at a partner bank and pays the interest to the GCs and subcontractors who earned it. Retain-Edge never holds, lends or invests the funds, and is now enrolling pilot projects.

Get early accessCalculate your interest

Public projects in Oregon

• Securities or an interest-bearing account. A contractor may deposit approved bonds, securities or other instruments instead of cash retainage, or have the agency put retainage in an interest-bearing account, with the earnings going to the contractor (ORS 279C.560).
• Reductions. After the work is 50 percent complete and going well, the agency may reduce or eliminate retainage on the contractor's written application with the surety's written approval. At 97.5 percent complete, it may cut retainage to the value of the remaining work.
• Paying subs. The contractor pays first-tier subcontractors within 10 days of being paid (ORS 279C.580).

How to get retainage released faster

1. Read the retainage clause before you sign. Look for the percentage, whether release is by scope or only at final completion, and what documents release requires.
2. Price a retainage bond. On large commercial and public jobs, a bond can get your retainage released early. Compare the premium with the cost of carrying the retainage.
3. Build the closeout package as you go. Collect warranties, O&M manuals, as-builts and certifications with your monthly pay apps instead of chasing them at the end.
4. Give written notice of completion. On public work, it starts the agency's 15 days to accept the work or list what's left.
5. Ask for scope-level release. If your scope is finished, ask for your retainage to be released when your scope clears, not when the last trade finishes. Many contracts allow it.

Oregon retainage FAQ

What is the maximum retainage in Oregon?+

Five percent, on public and private construction, at every tier (ORS 701.420 and ORS 279C.570).

Does Oregon require retainage to be held in escrow?+

Not for contracts entered on or after March 7, 2024. House Bill 4006 removed the escrow rule. It still applies to contracts over $500,000 entered between January 1, 2020 and March 6, 2024.

Can I post a bond instead of having retainage withheld in Oregon?+

Yes, on large commercial structures and public improvement contracts. The owner and lender must accept a surety bond from an Oregon-authorized surety, and withheld retainage is released (ORS 701.435).

When must retainage be released in Oregon?+

On public work, with final payment, and interest of 1.5 percent per month starts 30 days after completion and acceptance. On private work, interest of 1 percent per month starts 30 days after completion and acceptance, and the prompt pay law separately requires final payment within 7 days of approval.

How fast must a GC pay subs in Oregon?+

On private work, within 7 days after the GC is paid. On public work, first-tier subs are paid within 10 days after the contractor is paid.

Can public retainage be reduced in Oregon?+

Yes. After 50 percent completion, on written application with the surety's approval. At 97.5 percent complete, the agency can cut retainage to the value of the remaining work.

Who gets the interest on Oregon retainage?+

On public work, a contractor can have retainage placed in an interest-bearing account or replaced with securities, and the earnings go to the contractor. On private work, it depends on the contract unless an older contract falls under the 2020 to 2024 escrow rule.

Retainage guides for other states

California5% cap · 2%/mo late penaltyConnecticut5% cap · mandatory escrowFlorida5% public cap · 2%/mo lateGeorgia5% public cap · 10-day flow-downKentucky10%/5% caps · escrow at $2M+LouisianaEscrow at $50K+ · 10%/5% publicNew York5% cap · void above itNorth Carolina5% public cap · 50% stopTennessee5% cap · escrow at $500K+Texas10% reserve · public caps