June 18, 2014

Notice Requirements of Oregon’s Prompt Pay Act


ORS 279.445, known generically as the "Prompt Pay Act," provides that on public works projects, subcontractors are to be paid within 10 days of payment by the owner to the general. Importantly, the Act specifically requires that any prime subcontractors include this provision in their contracts as well. This generally means that the Prompt Pay Act applies to all sections of a public works job. The statute also provides that payment to the general contractor is specifically conditioned on sworn certification to the public contracting agency that the subcontractor is entitled to payment, and that the work has been performed satisfactorily.

There are only two exceptions to the Prompt Pay Act. The first is if the parties (the contractor and subcontractor) specifically agree in their subcontract to withhold a portion of the payment. The second, and more controversial exception is the "good faith dispute" exception, under which a general may withhold certain sums from payment to the subcontractor. Generally, "good faith disputes" relate to the progress of the job or defective work.

A contractor may rely on the "good faith dispute" exception by sending a notice of withholding setting forth the basis of the good faith dispute to the subcontractor and to the public agency. Failure to send the notice is fatal to the good faith exception. When a public agency learns there is a dispute with respect to payment, it will request any funds forwarded be remitted to the public agency pending outcome of the dispute. Significantly, if a general contractor represents to the public agency that work by the subcontractor has been done satisfactorily and receives payment for that work, then withholds payment without notice to the public agency or to the subcontractor, the general contractor is in violation of ORS 279.445.

There appears to be a presumption that the prompt pay statute "has no teeth" in it. To the contrary, the Construction Contractors Board (CCB) is given authority under ORS 701.227 to debar a contractor if it determines the contractor has not made payment to subcontractors within 60 days of receipt and the matter was not the subject of a "good faith dispute." When a general contractor fails to comply with the good faith dispute requirements of ORS 279.445 by failing to give adequate notice, the general contractor is subject to the provisions of ORS 701.227.

Over the years, I have heard a number of contractors, both generals and subs, comment that "slow pay" on public jobs is "business as usual." The statutes would suggest otherwise. Both subs and general should make certain that the paperwork and notices are complied with in order to comply with the statute.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.

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