Construction Projects Over $500K Must Hold Retainage in Escrow Account
On January 1, 2020, Oregon bill HB 2415 went into effect, changing the retainage requirements under Oregon’s prompt payment laws for contractors. Oregon law now requires the hiring party to put the amounts withheld as retainage in an interest-bearing escrow account on any construction contract more than $500K. The law applies to both public and private construction projects. Placing the withheld amounts in an interest-bearing escrow account is required regardless of which party is withholding the retainage – the contracting agency, owner, contractor or subcontractor.
In addition to the new escrow account requirement, the owner, contractor or subcontractor is required to pay interest at 1% per month on the final payment due to the contractor or subcontractor for private contracts. Similarly, the owner, contractor or subcontractor is required to pay interest at 1.5% per month for public contracts. The 1% interest, or 1.5% interest, starts accruing 30 days after the contractor or subcontractor has completed the project and the owner has accepted the work under the contract for construction for which the final payment is due.
The state of Oregon now joins just a handful of states that require retainage amounts to be kept in a separate, interest-bearing escrow account. By enacting this requirement, the state legislature is looking to provide extra protection for construction payments.
If your construction project contract is more than the $500K threshold, you will need to contact your bank to initiate the process for opening an interest-bearing account. We know the ever-changing legislative landscape can be confusing, so reach out to your Aldrich Advisor today to start working with someone who understands the construction industry. If you have question regarding the implications of HB 2415, contact your Aldrich Advisor or give us a call at 877-620-4489.
Meet the Author
Tracy Allen, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Tracy Allen brings 20 years of experience focusing in construction accounting and leads Oregon’s construction industry practice. She provides attest work and consulting services such as cash-flow management, operational reviews, systems and process reviews, as well as succession planning to her clients. Tracy holds her CCIFP® designation in the construction industry. She is honored to…
- Audits, reviews and compilations
- Construction industry, surety and bonding requirements
- Closely-held businesses and owners
- Certified Public Accountant
- Certified Construction Industry Financial Professional (CCIFP®)