New Oregon Law Complicates Retainage on Construction Projects

If you do not follow the Oregon legislature closely, you may have missed a new law, which went into effect January 1, 2020, that impacts the treatment of retainage on private and public construction projects over $500,000.

For private and public construction contracts entered into on or after January 1, 2020 that include a contract price of more than $500,000, ORS 279C.570(2) and ORS 701.420(2)(b) require an owner, contractor or subcontractor to place the amounts deducted as retainage into an interest-bearing escrow account. The interest on the retainage accrues from the date the payment request is made until the date the retainage is paid to the contractor or subcontractor to which it is due.

Although this law seems simple on the surface, the application of this new law raises many questions. We have attempted to answer some of those questions below.

Who Provides Escrow Services and What Are the Fees?

Generally, an interest-bearing escrow account is not an account that can be opened up at your local bank or a title company as it is unrelated to a mortgage or the sale of the underlying land. Rather, these accounts are opened with escrow companies that provide this specialty service. In Oregon, there are only a handful of companies that provide this escrow service.

The fees associated with opening an escrow account vary depending on the amount of money deposited into the account, how long the money will sit in the account, and how disbursement will occur.

Because only a couple of companies provide this escrow service and the fees are on a sliding scale basis, it is imperative to do your due diligence before the project starts and understand the logistical and financial impacts this will have on your project and your bottom line.

What Happens if the Retainage Is Not Placed into an Interest-Bearing Escrow Account?

ORS 279C.570(2) and ORS 701.420(2)(b) provide clear language as to when the retainage has to be placed into the escrow account and how the interest will accrue. However, the statutory language does not provide any clear explanation of what will happen if the retainage is not placed into an escrow account. Specifically, it does not identify what the offending party is going to be liable for: the amount of interest that was supposed to accrue if the money was in the escrow account or the statutory amount of 12% per year (or 1% per month).

Based on the statutory language and the legislative history, it seems that the offending party would be liable for the interest that should have accrued if the money was in the escrow account. This interpretation is in line with the language in ORS 279C.570 and ORS 701.420 as the statutory amount of 12% (or 1% per month) is only activated if the contractor or subcontractor has completed its work and the owner accepted the work, but the final payment has not been paid to the contractor.

Who Gets the Interest?

Although not specifically stated in the language of ORS 279C.570 and ORS 701.420, the interest accrued on the project probably accrues and is due to the contractor or subcontractor and not to the party that opened the account.

This conclusion is supported by the legislative history related to these laws (for example, prior laws in the Public Contracting Code provided that “earnings” from an interest-bearing account accrue to the contractor) and the rationale behind the concept of retention because retention is tied to specific work completed on the project.

If you have additional questions or would like additional information about this topic, please contact us.

Registration Now Open for the WSBA Construction Section’s Annual CLE Seminar (Via Webinar on June 12, 2020, on Alternative Procurement and Coronavirus Impacts)

The Construction Section of the Washington State Bar Association, in partnership with Stoel Rives, will present its annual full day seminar (via webinar) on June 12.  Co-chaired by Bart Reed (Partner at Stoel Rives), Brett Hill (Partner at Ahlers, Cressman & Sleight), and Ron English (Retired General Counsel of the Seattle Public Schools), the webinar will concentrate on various alternative procurement approaches, including public-private partnerships, design-build issues, and developments in general contractor/construction manager (GC/CM) contracting.  Karl Oles, a Partner in Stoel Rives’ Construction and Design Group, will provide highlights from the “Bertha” design-build tunnel project and the related litigation.

In recognition of the tremendous impact wrought by COVID-19, the webinar will include a presentation on how the coronavirus has impacted and will continue to impact the construction industry.  The popular Judicial Panel, consisting of the Honorable Beth Andrus (Court of Appeals, Division I, Seattle), the Honorable Jim Rogers (Presiding Judge, King County Superior Court, Seattle), and the Honorable Catherine Shaffer (King County Superior Court, Seattle), will share perspectives on how the pandemic has changed trial and appellate practice and how the courts and law practice will continue to evolve to address and manage the impacts.

Adhering to tradition from past years, the webinar will include an update on recent appellate cases of interest to construction law practitioners and a survey of the 2020 Washington legislative session.  Rounding out the program will be Chris Soelling’s entertaining and informative “ethics hour,” with musings on how COVID-19 has impacted mediation and settlement discussions.

At the conclusion of the webinar, attendees will be invited to participate in a BYOB social hour, which could very well devolve into a crash course in remote video conferencing etiquette.

To register for this year’s WSBA Construction Section CLE webinar, please follow this link.

Construction Alert: Washington Court of Appeals’ Conway Opinion Provides New Guidance Regarding a Right to Cure, a Set-Off, and Recovery of Attorney Fees

In Conway Construction Company v. City of Puyallup, No. 80649-1-1 (May 4, 2020), the Washington Court of Appeals, Division 1, adopted Oregon’s Shelter Products, Inc. v. Steelwood Construction, Inc., precluding certain claims for defects in termination cases and limiting the justification for termination to those listed in the termination notice.  It also held that Washington’s settlement statute protecting public owners, RCW 39.04.240, trumps an attorney fee provision in a contract.

In Conway, the City of Puyallup (“City”) contracted with Conway Construction Company (“Conway”) to construct certain roadway improvements.  During the project, the City became concerned about construction defects.  The City issued notices to Conway expressing its concerns.  The City also observed unsafe work conditions and reported the safety violations to the Washington State Department of Labor & Industries.  After issuing a series of notices, the City terminated Conway because of its defective work and safety violations. Continue Reading

Latest OSHA COVID-19 Safety Tips for the Construction Industry & Guidance on Drafting a COVID-19 Policy and Administering the Job Site to Minimize the Hazard

OSHA’s General Duty Clause requires an employer to provide a workplace free from recognized hazards that are likely to cause death or serious physical harm.  In the current pandemic,  COVID-19 qualifies and contractors should draft a COVID-19 policy for their worksites implementing the latest guidance in order to minimize the hazard and protect employees.

In addition to OSHA’s COVID-19 standards, on April 21, 2020, OSHA published a list of tips that can help reduce the risk of exposure to COVID-19 in the construction industry.  Some of those tips include:

  • Allowing workers to wear masks over their noses and mouths to prevent them from spreading the virus.
  • Training workers on how to properly wear and use protective clothing and equipment.
  • Keeping in-person meetings (including toolbox talks and safety meetings) as short as possible and limiting the number of workers in attendance.
  • Encouraging workers to stay home if they are sick.
  • Maintaining physical distance (at least six feet when possible) on the job site and inside work trailers.
  • Encouraging frequent handwashing or sanitizing.

Continue Reading

Can (or Should) My Project Continue During the Shutdown?

Several weeks have passed since Governor Brown formally ordered all Oregonians to “Stay Home, Save Lives,” and owners, project designers, and contractors have all had the opportunity to absorb its initial impacts.  While many stakeholders were initially relieved that construction projects in Oregon could apparently continue—subject to the various social distancing and travel restrictions described in the Order—that does not mean that proceeding with ongoing or planned construction projects is without impact or risk from COVID-19.

As we face the apparent likelihood that the Order will remain in place for several more weeks if not into the summer, there are a number of considerations that all project participants should keep in mind when deciding whether to continue with or start a construction project.  Read the full article here.

Originally published as “OP-ED: Can (or should) my project continue during the shutdown?” by the Oregon Daily Journal of Commerce, April 17, 2020.

Construction-Related Activity Restrictions in Select States

State and local officials across the country have responded to COVID-19 with various executive orders and restrictions on businesses to help flatten the curve of the pandemic. Each state’s response opens the door for potential impacts on projects commencing or under construction, and on the parties involved with those projects.

To assist clients and friends, Stoel Rives has created an interactive map designed to provide an accessible, high-level view of the orders in select states, and the impacts on construction activities.

Click here to view the map and overviews of these states’ executive orders, restrictions issued by major municipalities, and the impacts of these orders on construction projects. The map highlights information regarding executive orders that impact non-essential activities as well as states’ plans for re-opening.

Differing Site Conditions An Issue in the Seattle SR 99 Tunnel Litigation

In late 2019, the Washington State Department of Transportation and Seattle Tunnel Partners (STP) engaged in a nine-week trial of claims arising from construction of the new State Route 99 tunnel under downtown Seattle. One major issue for the jury was whether STP had encountered “differing site conditions” – unknown underground conditions that differ materially from those set forth in the contract documents. In my latest article for the Daily Journal of Commerce, I outline the legal background of the trial and for the jury’s conclusion that obstacles encountered during the project did not constitute a differing site condition. Read the full article here.

Originally published as “‘Differing site conditions’ and Seattle tunnel project litigation” by the Daily Journal of Commerce, March 19, 2020.

COVID-19 Alert – Governor Jay Inslee Extends Stay at Home, Stay Healthy Proclamation Through May 4, 2020 and Delays Implementation of New State Building Code

On March 23, 2020, Governor Jay Inslee issued the Stay Home, Stay Healthy Proclamation (20‑25) in response to the COVID-19 pandemic.  Originally, the Proclamation was to be in effect through April 8, 2020.  Despite Washington’s aggressive efforts to flatten the curve, on April 2, 2020, Governor Inslee announced his decision to extend the Proclamation through May 4, 2020.  Therefore, non-essential businesses will not be allowed to operate until May 5, 2020.

During a press conference, Governor Inslee expressed that the health and welfare of citizens is the first step to recovering the economy.  While there is some bipartisan agreement among lawmakers on his decision, key interest groups are lobbying the Governor to broaden his definition of essential businesses to include, for instance, residential construction, which is currently at a standstill, subject to certain exceptions discussed in his Memorandum dated March 25, 2020.  However, for now, it appears that Governor Inslee’s extension will keep the same restrictive guidelines and exceptions in place.

In addition, Governor Inslee issued Proclamation 20-40, which delays the implementation of new state building codes from July 1 to November 1, 2020. The Proclamation explained that the Washington State Building Code Council (“SBCC”) requires additional time to conduct outreach, training, and otherwise prepare for implementation of the scheduled code amendments.  The COVID-19 pandemic has significantly constrained SBCC’s ability to prepare for the code changes.  In addition, this Proclamation was targeted at addressing developers’ need for predictability as permit-related meetings are delayed due to public health risks.

Construction Work Under COVID-19 Orders in Utah

Unlike many of its neighboring states, Utah currently has no statewide “stay home” or “shelter in place” order. However, in response to COVID-19, Governor Gary Herbert has issued a “Stay Safe, Stay Home” directive on March 27, 2020. This is not a shelter in place order.  It is a directive that tells individuals and businesses what they should do to slow the spread of COVID-19 in Utah. This directive may have an impact on construction projects in Utah as it relates to safety and health in the workplace, which includes construction sites.  In addition to the directive, after seeing a surge of coronavirus cases, Summit County has issued two shelter in place orders (the first issued on March 23, 2020 and the second on March 25, 2020) that have a direct impact on construction projects in the county. Following suit, Salt Lake County has issued a stay at home order on March 29, 2020 and Davis County has issued a stay at home order on April 1, 2020.

Statewide Directive

The statewide directive, which will remain in effect through April 13, 2020, includes instructions for all individuals, as well as high-risk individuals (60 years and older and those with serious underlying medical conditions) and children, regarding hygiene, gatherings, travel, and outdoor recreation. Under the directive, businesses can remain open and are reminded to comply with all public health orders, offer telework options wherever possible, continue following strict hygiene policies, and implement enhanced social distancing measures in the workplace where telework is not an option.

Because this is a directive and not an order, businesses should, but are not required to, implement certain health and safety and social distancing policies and guidelines.  However, due to the nature of COVID-19 and the potential for close contact on a construction site, contractors should strive to implement some kind of health and safety regulations or standards on their job sites. For example, the CDC and AGC of Utah have great resources, including detailed employer guidance, on how to implement and maintain sanitation and hygiene regimens and standards on construction sites.

County Orders

The first Summit County shelter in place order went into effect Friday, March 26, 2020 and will be in place until May 1, 2020, and the second order went into effect Saturday, March 27, 2020 and will be in place until May 1, 2020. The second order expands on the first by providing clear descriptions of businesses that are allowed to operate in the county.  If there is a conflict between the two, the latter order controls.

As applicable to the construction industry, the Summit County orders allow for the continuation of public works construction and residential and commercial construction as all three are deemed “Essential Infrastructure” and are included in the definition of “Essential Businesses” allowed to continue their business operations in the county.  However, certain limitations and regulations apply to construction sites. The following is a non-exhaustive list of those limitations and regulations (for the complete list, consult the March 23, 2020 Summit County order):

  • Management is required to instruct all employees to clean their hands often with sanitizer or wash their hands, and provide soap and water or sanitizer on the job site, and must ensure that adequate supplies are maintained.
  • Employees are not allowed to congregate in lunch areas.
  • Employees are not allowed to share tools and PPE.
  • Employees must utilize shoe sanitation tubs before entering and leaving the job site.
  • Management must on a daily basis ensure that no employee exhibiting symptoms associated with COVID-19 is permitted to work.

Shortly after the second Summit County order, Salt Lake County issued its stay at home order. The stay at home order went into effect Monday, March 30, 2020. Just like the Summit County orders, this order categorizes public works construction and residential and commercial construction as “Essential Infrastructure” included in the definition of “Essential Businesses” allowed to continue their business operations in the county.  However, the order also states that appropriate social distancing guidelines must be followed in the operation of those businesses to the extent possible.

Unlike the Salt Lake County and Summit County orders, the Davis County order, which went into effect Wednesday, April 1, 2020, does not categorize businesses as essential or not. Rather, the Davis County order orders closure of certain businesses like salons and spas where social distancing is difficult to implement. All other businesses are allowed to operate so long as appropriate social distancing guidelines are followed.

Although the current state of affairs in Utah (which is changing daily) allows residential and commercial construction work to continue at both state and county levels, it is important for construction companies and owners to be aware of the guidelines and regulations that impact the day-to-day work on construction sites. Implementing and maintaining health and safety and social distancing standards not only complies with the current regulations in Utah, but it also protects employees during this uncertain time.

Stay up-to-date with our coverage on the Stoel Rives Coronavirus (COVID) Resource Hub.

Guidance for Owners and Contractors with Construction Projects in Oregon in Light of the Statewide “Stay Home” Order

On March 23, 2020, Oregon Governor Kate Brown issued Executive Order No. 20-12 directing Oregonians to “Stay Home, Save Lives.”

Unlike “stay home” orders in some other states—which prohibit the operation of all business unless specifically exempted—the Oregon Order prohibits the operation of specific categories of businesses identified in the Order (e.g., amusement parks, aquariums, etc.).  Presumably, this means that if a category of business is not identified, then it is not subject to the prohibition.

Because “construction” is not specifically identified as a prohibited business, it is reasonable for owners and contractors to presume that their projects in Oregon may continue for the time being.  While not explicitly part of the Oregon Order, some are characterizing it as  “permission by omission,” meaning that the omission of a business on the prohibited business list means you have permission to operate that business.  But proceeding under that assumption is not entirely without risk, and there are other important considerations for both owners and contractors to bear in mind, including: Continue Reading

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