April 1, 2012

Spring Cleaning… Sine Die Means it is Time to Dust Off Your Construction Contract Forms!


By Katie Jeremiah

Spring 2012

The gavel-drop that signaled the final adjournment of Oregon's 2012 legislative session also signaled Oregon contractors to begin spring cleaning. Contractors should dust off their existing contracts, notices, and other forms to ensure that lien rights and contract provisions are still enforceable in light of recent legislative reform. They should also verify that all licenses and registrations are current, that insurance policies have not expired, and that mandatory continuing education requirements have been completed prior to the license-renewal deadline.

Construction contractors are subject to volumes of ever-changing federal and state statutes and agency rules, which regulate every aspect of their business — when they must pay subcontractors and suppliers, how much they pay to workers, the hours of continuing education they must attend, and the notices they provide to customers, just to name a few. If a contractor misses a step that the law requires, grave consequences can follow. A contractor's inadvertent omission in a contract or notice could jeopardize its ability to be paid — or worse — result in the involuntary revocation of its contractor's license (which may also prevent collecting payment).

The good news? Unlike the major public contracting reforms of 2003 and the private contracting reforms of 2007, the 2012 legislative session does not require a major overhaul of most construction contracts. But there are a few provisions that may need scrubbing. And if you are a contractor who has missed updating your contracts for the past several years, this may be the time for a deep cleaning.


Public Contracting. HB 4034 will rein in contractors who were taking advantage of interest earnings on money that was improperly withheld from subcontractors on public projects. Prior to HB 4034, some contractors found that the benefit of interest earned on improperly withheld money far outweighed any penalty that might be imposed for late payment. Those contractors would prolong payment by constantly changing payment application requirements or by simply withholding the payment without explanation. The new law increases the penalty for late payment to 9 percent per year, which quadruples the current penalty — albeit modestly — but it creates a real disincentive to withholding payments from lower-tier contractors. The new law also requires contractors to provide 45 days' notice for any change in payment application requirements. Contractors should verify the payment terms in contracts for public works to be sure that the old interest penalty formula is updated to reflect the new law.

Deep Clean

Public Contracting. The 2012 legislative session signaled more progress in securing funding for economic recovery through public improvement projects, including $80 million in improvements at Oregon State University. If your business is seeking to transition into the public sector in light of the scarcity of private sector work, consult with an attorney to make sure your contract includes provisions that are mandated by the public contracting code. The code requires specific provisions regarding prompt payment, hours of labor, prevailing wage, and bonding requirements. If you are seriously considering transitioning into public sector work, you should also consult with your attorney about proper licensing endorsements, DBE status, and contractor prequalification — all of which may increase your chances for securing public work.

Residential Contracting. If you are among the lucky few still performing private sector residential work, verify that you have a written contract in place for every project. Failure to have a written contract in place waives a contractor's lien rights for most residential projects. The construction contractors' board ("CCB") also requires that residential contractors provide customers with very specific notices prior to commencing work. The CCB website provides sample forms, and your attorney can assist you in optimizing the forms to suit your business.

Maintaining the Sparkle (aka Keeping Your Front Porch Clean)

Since the Oregon legislature is now meeting annually, it is difficult to keep pace with changes to contracting laws and regulations. A prudent contractor will work closely with trade associations and attorneys who are familiar with the ever-changing landscape of contracting reform in their specialty area. These resources can educate you regarding the impact of proposed legislative reform that affects your business. Your attorney can also suggest modifications to your contracts and forms that may be required by changes in the law and can help you keep track of important deadlines that affect your status as a licensed contractor and your eligibility to perform certain work.

Spring 2012

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