1. (1)

   1. (a) A contractor that performs work on a large commercial structure or under a public improvement contract may submit to the project owner and any lender, and the owner and lender shall accept, a surety bond in lieu of all or any portion of the retainage required for the large commercial structure or under the public improvement contract.
   2. (b) When an owner and any lender accept a surety bond in lieu of retainage from a contractor under this section, the contractor shall accept surety bonds from subcontractors or suppliers from which the contractor has withheld retainage. At any time before final payment for work on a large commercial structure or under a public improvement contract, a subcontractor may submit a surety bond to the contractor on the large commercial structure or under the public improvement contract and request that the contractor submit a surety bond to the project owner and any lender for the portion of the contractor’s retainage that pertains to the subcontractor. The surety bond must be from a surety bonding company that is authorized to transact business in this state and may not be a surety obligation of an individual. The surety bond the subcontractor submits to the contractor must be in substantially the form specified in subsection (4) of this section. When a contractor at the subcontractor’s request obtains and submits to the owner and any lender a surety bond under this subsection, the contractor may withhold from payments to the subcontractor an amount equivalent to the portion of the contractor’s surety bond premium for which the subcontractor is responsible.

   3. (c) Within 30 days after a subcontractor’s request under paragraph (b) of this subsection, the contractor shall provide, and the owner and any lender shall accept, a surety bond that meets the requirements set forth in this subsection unless:

      1. (A) The surety bond is not commercially available; or
      2. (B) The subcontractor refuses to pay to the contractor the subcontractor’s portion of the surety bond premium or refuses to provide the contractor with a surety bond that meets the requirements of this subsection.
   4. (d) A surety bond the contractor submits under this subsection, and any proceeds from the surety bond, are subject to all claims and liens and in the same manner and priority specified for retainage under this section and ORS 279C.550 to 279C.570, 279C.600 to 279C.625 and 701.420, as applicable.
   5. (e) An owner and any lender shall, within 30 days after receiving a surety bond under this subsection, release to the contractor an amount the owner and lender hold as retainage that is equivalent to the amount the contractor submitted as a surety bond.
   6. (f) The contractor must, within 30 days after receiving a surety bond from a subcontractor or supplier, reduce the amount the contractor holds as retainage in an amount equivalent to the amount the subcontractor or supplier submitted as a surety bond and shall pay the amount of the reduction to the subcontractor or supplier in accordance with ORS 701.420 and 701.430.

2. (2) If a contractor or a subcontractor performing work on a large commercial structure or under a public improvement contract does not deposit a surety bond in lieu of retainage, the contractor may elect to have the project owner or contracting agency deposit accumulated retainage in an interest-bearing account with a bank or other financial institution or pay interest on the accumulated retainage at the rate of two percent plus the discount rate on 90-day commercial paper that is in effect at the Federal Reserve Bank in the Federal Reserve district that includes this state on the date that the retainage is paid. Subject to subsection (3) of this section, if the contractor elects to have accumulated retainage pay interest, the contractor, within 30 days following payment of the final amount due for construction of the project or public improvement, shall pay to each subcontractor that performed work on the construction the subcontractor’s proportional share of the interest earnings that accrued to the contractor as a result of the election. A subcontractor’s share of the total amount of interest earnings under this subsection must be determined by the proportion that the amount of retainage withheld from the subcontractor bears to the amount of retainage withheld from the contractor and the length of time the retainage was withheld from the subcontractor. A share of the interest earnings shall be paid to a subcontractor under this subsection only when:

   1. (a) Retainage is withheld from the subcontractor for more than 60 days after the day on which the first partial payment was due the subcontractor under the terms of the subcontract; and
   2. (b) The amount of interest earnings due the subcontractor exceeds $100.
3. (3) If a contractor incurs additional costs as a result of the exercise of an option described in subsection (1) or (2) of this section, the contractor may recover the additional costs from the subcontractor by reducing the final payment. As work on the subcontract progresses, the contractor shall, upon demand, inform the subcontractor of all accrued additional costs.

4. (4) A surety bond under this section and ORS 279C.560 must be in substantially the following form:

   RETAINAGE SURETY BOND

   KNOW ALL BY THESE PRESENTS: That ____________, a ____________ authorized to do business in the State of Oregon, as Principal, and ____________, a corporation organized and existing under the laws of the State of ____________ and authorized to transact the business of surety in the State of Oregon, as Surety, are jointly and severally held and bound to ____________ (“Obligee”) and ____________ (“Owner”), and their lenders, heirs, executors, administrators, successors and assigns in the penal sum of $____________, plus ______ % (not more than five percent) of any increases in the contract amount that may occur because of change orders or increases in the quantities of or that addition of any new item of work.

   WHEREAS the Principal has executed a contract for ____________ with the Obligee; and

   WHEREAS Oregon law allows the Obligee to withhold from the Principal a sum equivalent to ______ % (not more than five percent) from moneys the Principal earns on estimates or progress payments during the progress of the work (“Earned Retained Funds”); and

   WHEREAS the Principal has requested that the Obligee or Owner accept a surety bond in lieu of Earned Retained Funds as allowed under ORS 279C.560 or 701.435;

   NOW, THEREFORE, this obligation is such that the Surety and the Surety’s successors and assigns are held and bound to Obligee, Owner and any lender, and to all beneficiaries for the sum set forth in the first paragraph of this retainage surety bond. This surety bond and any proceeds from this surety bond are subject to all claims and liens by the Obligee against the Principal in the same manner and priority as specified for retainage under ORS 279C.550 to 279C.570, 279C.600 to 279C.625 and 701.420, as applicable. The condition of this obligation is such that if the Principal satisfies all payment obligations to any Obligee that may lawfully claim against project sums due to the Principal and indemnify and hold the Obligee harmless from any and all loss, costs and damages that the Obligee may sustain by release of the retainage to the Principal or Surety, this obligation is null and void if the Obligee notifies the Surety that the Obligee released the obligation. The obligation otherwise remains in full force and effect.

   IT IS HEREBY DECLARED AND AGREED that the Surety is liable under this obligation in the same manner and to the same extent as is Principal. The Surety will not be discharged or released from liability for any act, omission or defense of any kind or nature that would not also discharge the Principal.

   IT IS HEREBY FURTHER DECLARED AND AGREED that this obligation is binding upon and inures to the benefit of the Principal, the Surety, the Obligee, the Owner, any lender and the beneficiaries of this obligation and their respective heirs, executors, administrators, successors and assigns.

   SIGNED AND SEALED this ______ day of ______, 20___

   Principal ______ Surety ______

   Name ______ Name ______

   Title ______ Title ______

   Address ______ Address ______

   City/State/Zip _____ City/State/Zip _____

   Phone ______ Phone ______

   ______________________________________________________________________________

Note: See note under 701.410.

[1977 c.767 §2; 1983 c.690 §16; 2003 c.794 §320; 2009 c.568 §2; 2024 c.2 §4]