When a public agency loses a contract dispute and has to pay a contractor with interest, is the interest rate set as of the date payment was first due, or as of the date of the settlement or judgment?

Plain-English summary

The Director of the Oregon Department of Transportation asked the Attorney General how to read the interest-computation language in ORS 279.435(9), the statute that controls what a public agency owes a contractor when the agency disputes a payment, loses, and then has to make the contractor whole. Before 1999, the statute pegged the penalty interest rate to the federal discount rate "at the time of the settlement or judgment." After House Bill 2895 (Or. Laws 1999, ch. 689) rewrote the section, the wording was harder to parse, and ODOT wanted to know whether the rate was now set at the date of judgment, the date of the contractor's claim, or the date the original progress payment was due.

Attorney General Hardy Myers concluded that the rate is set as of the later of (a) the due date of the relevant progress payment under the contract or (b) thirty days after the contractor's written claim. Interest also accrues from the same later-of date. The date of the eventual settlement or judgment is no longer relevant to either the rate or the accrual.

The opinion read the literal text of ORS 279.435(9), then bolstered the reading by tracing the 1999 legislative history of HB 2895 and by lining up the related provisions for progress payments (ORS 279.435(2)), prime-to-sub payments (ORS 279.314(2)), and subcontractor pass-throughs (ORS 279.445(4)(b)). The unifying pattern that emerged was: penalty interest is twice or three times the discount rate on 90-day commercial paper that existed on the date the payment should have been made, capped at 30%, and accruing from that same due date. The 1999 amendments were aimed at making all of those provisions work the same way and at moving the interest exposure backward in time so that contractors and subcontractors (not just the public agency) paid for delay.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Which date controls the interest rate in ORS 279.435(9)?
A: The opinion concluded that the rate is the discount rate on 90-day commercial paper at the Federal Reserve Bank in the Oregon district, on the later of (a) the due date of the relevant progress payment or (b) thirty days after the contractor presented the disputed claim in writing.

Q: Did the date of the settlement or judgment matter?
A: The AG concluded that under the rewritten statute it did not. Before the 1999 amendment, ORS 279.435(8) pegged the rate to the date of the settlement or judgment. The Legislature deliberately changed that.

Q: From what date does the interest itself accrue?
A: The opinion concluded interest accrues from the same later-of date used to fix the rate. The same date does double duty.

Q: What is the interest rate formula?
A: Two times the discount rate on 90-day commercial paper at the Federal Reserve Bank in the Federal Reserve district that includes Oregon, capped at 30%.

Q: How does ORS 279.435(9) line up with the statute on progress-payment interest?
A: The opinion explained that ORS 279.435(2) uses three times the discount rate (rather than two) and pegs the date to either thirty days after invoice receipt or fifteen days after agency approval, whichever is earlier. The two statutes are siblings: the same general approach but different rate multipliers and different anchor dates suited to their context.

Q: How does it compare to the prime contractor's duty to its subcontractors?
A: ORS 279.314(2) (also rewritten in 1999) requires a prime to pay subcontractors within 30 days of the prime's own receipt of payment from the public agency. Penalty interest is three times the discount rate, calculated as of the date 30 days after the prime received payment from the agency. It cannot be waived.

Q: What was the legislative intent behind HB 2895?
A: The opinion concluded the bill was a comprehensive scheme to (1) push prompt-payment obligations all the way down the chain from public agency to prime to first-tier subcontractor, (2) replace fixed interest rates with floating discount-rate-based rates that match contemporaneous cost of money, and (3) anchor every rate at the date payment was first due rather than at some later trigger.

Background and statutory framework

ORS chapter 279 (as it stood in 2004) was Oregon's general public contracting code. Several sections in chapter 279 imposed mandatory interest penalties for late payments at successive levels of the contracting chain:

• ORS 279.435(2) — interest on a public agency's late progress payment to its prime contractor
• ORS 279.435(9) — interest on a public agency's payment to its prime contractor following a settlement or judgment in a payment dispute
• ORS 279.314(2) — interest on a prime's late payment to a first-tier subcontractor
• ORS 279.445(4)(b) — interest clauses required to flow down to subcontractor payments

Before 1999 each of these used different formulas and different reference dates, which often produced inconsistent results. House Bill 2895 in the 1999 session redrafted the chapter so that every section calculated interest using the same general approach: a multiplier (two or three) times the discount rate on 90-day commercial paper at the Oregon-area Federal Reserve Bank, anchored to the date payment should originally have been made.

Although the rewritten language is harder to read than the pre-1999 version, the AG concluded its plain meaning is clear: the operative date is the date payment was due. The opinion used the PGE v. BOLI methodology — text first, then context (the related sections), then legislative history (the chronology of HB 2895 amendments and the testimony from sponsor Paul Phillips of the Plumbing and Mechanical Contractors Association). The history confirmed the textual reading.

Citations and references

Statutes:
- ORS 174.020 (rules of statutory construction)
- ORS 279.314(2) (prime-to-subcontractor interest); ORS 279.314(3) (CCB complaint procedure)
- ORS 279.435(2) (progress payment interest); ORS 279.435(9) (interest on disputed payments after settlement or judgment)
- ORS 279.445(4)(b) (flow-down interest clauses)
- Oregon Laws 1999, ch. 689 (HB 2895)

Cases:
- PGE v. Bureau of Labor and Industries, 317 Or. 606 (1993) (statutory interpretation methodology)
- Coast Security Mortgage Corp. v. Real Estate Agency, 331 Or. 348 (2000) (giving common words their plain meaning)
- City of Tualatin v. City-County Ins. Services Trust, 321 Or. 164 (1995) (context includes related statutes)
- Clackamas County v. Gay, 146 Or. App. 706 (1997) (literal interpretation prevails absent unreasonable result)

Legislative materials: Minutes, House Committee on General Government, HB 2895 (March 16, 1999; April 1, 1999; April 6, 1999); B-Engrossed HB 2895 (May 1999).

Source

• Index page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2004/02/op2004-2.pdf

Original opinion text

HARDY MYERS

PETER D. SHEPHERD

Attorney General

Deputy Attorney General

DEPARTMENT OF JUSTICE
GENERAL COUNSEL DIVISION

February 26, 2004

Bruce A. Warner, Director
Oregon Department of Transportation
355 Capitol Street NE
Salem, OR 97301-3871
Re:

Opinion Request OP-2004-2

Dear Mr. Warner:
You have asked us to address the following question relating to the method of computing
the rate of interest to be paid by a public contracting agency, upon settlement or judgment in
favor of the contractor regarding any dispute as to the compensation due the contractor.
1.
Under ORS 279.435(9), as amended in 1999, is the interest rate to be computed as
of the date of the settlement or judgment, or is the interest rate computed as of some other date,
such as 30 days after the contractor’s claim was made, or as of the due date of the progress
payment?
The interest rate is to be determined as of the later of (a) the due date of any progress
payment received under the contract for the period in which such work was performed or (b) 30
days after the date on which the contractor’s claim for the payment under dispute was presented
to the public contracting agency by the contractor in writing or in accordance with applicable
provisions of the contract. Interest accrues from the same date.
Discussion
In interpreting statutes that define the duties of a public contracting agency, our goal is to
discern the intent of the legislature. See ORS 174.020; PGE v. Bureau of Labor and Industries,
317 Or 606 (1993). We first look at the text and context of a statute, which includes other
provisions of the same statute and related statutes. In so doing, we consider dictionary
definitions, rules of grammar, and statutory and judicially developed rules of construction that
bear directly on how to read the text, such as “words of common usage typically should be given
their plain, natural, and ordinary meaning.” Id. at 611. If the legislative intent is clear from the
text and context, the search ends there. Only if the legislative intent is not clear from the text and
context of the statute will we look to the legislative history to attempt to discern that intent. Id.
at 611-612. If, after considering text, context and legislative history, the intent of the legislature
remains unclear, we may resort to general maxims of statutory construction to resolve any
remaining uncertainty as to the meaning of the statute. Id. at 612.

Bruce A. Warner, Director
February 26, 2004
Page 2

1.

The plain meaning of ORS 279.435(9) is clear from its text and context.

In 1999, the statute describing the date used for establishing the rate of interest and the
date from which interest accrues under circumstances where a public agency has disputed a
request from a contractor for compensation was amended and moved to ORS 279.435(9). The
statute now provides in relevant part:
(a)

(b)

The public contracting agency shall pay, upon settlement or judgment in
favor of the contractor regarding any dispute as to the compensation due a
contractor for work performed under the terms of a public contract, the
amount due plus interest at the rate of two times the discount rate, but not
to exceed 30 percent, on 90-day commercial paper in effect at the Federal
Reserve Bank in the Federal Reserve district that includes Oregon on the
date and accruing from the later of:
(A)

The due date of any progress payment received under the contract
for the period in which such work was performed; or

(B)

Thirty days after the date on which the claim for the payment
under dispute was presented to the public contracting agency by
the contractor in writing or in accordance with the applicable
provisions of the contract.

Such interest shall be added to and not made a part of the settlement or
judgment. (Emphasis added.)

The starting point in every case involving construction of a statute is the language used
by the legislature. Each word must be given its operative effect, and words of common usage
typically should be given their plain, natural, and ordinary meaning. Coast Sec. Mortg. Corp. v.
Real Estate Agency, 331 Or 348, 15 P3d 29 (2000). Applying these rules of construction, it is
plain that ORS 279.435(9) provides that (1) the interest rate generally is two times the discount
rate that existed for 90 day commercial paper on the due date of any progress payment, or thirty
days after the date on which the claim for the payment under dispute was presented to the public
contracting agency by the contractor in writing, whichever is later; and (2) the interest also
accrues from the due date of the progress payment or thirty days after the date on which the
claim for payment was presented, whichever is later.
The words of the statute are to be given a literal interpretation, unless the literal
interpretation is so at variance with the apparent policy of the statute as to bring about an
unreasonable result. Clackamas County v. Gay, 146 Or App 706, 934 P2d 551, rev den. 325 Or
438, 939 P2d 621 (1997). The language used in the comparable subsection of ORS 279.435, as
it existed prior to the 1999 amendment, may be easier to read and interpret for some. However,
the legislature deliberately changed this subsection in 1999 to conform with other sections in the

Bruce A. Warner, Director
February 26, 2004
Page 3
same statute, and the plain meaning of the current subsection does not create an unreasonable
result.
2.

ORS 279.435(9)(a), interpreted in the context of other provisions of the same
legislation, requires that interest be computed as of the date the payment was due.

In discerning the legislature’s intent, the context of the statutory provision at issue should
be considered. Context includes other provisions of the same statute and other related statutes.
City of Tualatin v. City-County Ins. Services Trust, 321 Or 164, 894 P2d 1158 (1995). As a
result of the 1999 legislation, several statutes concerning the method of interest rate computation
were created or changed. See Or Laws 1999, ch 689 (HB 2895). The pertinent parts of those
sections currently are codified as follows:
ORS 279.314(2). “* * * The rate of interest charged to the contractor or first tier
subcontractor on the amount due shall equal three times the discount rate on 90day commercial paper in effect at the Federal Reserve Bank in the Federal
Reserve district that includes Oregon on the date that is 30 days after the date
when payment was received from the public contracting agency or from the
contractor, but the rate of interest shall not exceed 30 percent.” (Emphasis
added).
ORS 279.435(2). “The rate of interest charged to the public contracting agency
on the amount due shall equal three times the discount rate on 90-day commercial
paper in effect at the Federal Reserve Bank in the Federal Reserve district that
includes Oregon on the date that is 30 days after receipt of the invoice from the
contractor or 15 days after the payment is approved by the agency, whichever is
the earlier date, but the rate of interest shall not exceed 30 percent.” (Emphasis
added).
ORS 279.435(9)(a). “The public contracting agency shall pay, upon settlement or
judgment in favor of the contractor regarding any dispute as to the compensation
due a contractor for work performed under the terms of a public contract, the
amount due plus interest at the rate of two times the discount rate, but not to
exceed 30 percent, on 90-day commercial paper in effect at the Federal Reserve
Bank in the Federal Reserve district that includes Oregon on the date and
accruing from the later of:
(A)

The due date of any progress payment received under the contract
for the period in which such work was performed; or

(B)

Thirty days after the date on which the claim for the payment
under dispute was presented to the public contracting agency by
the contractor in writing or in accordance with the applicable
provisions of the contract. (Emphasis added).

Bruce A. Warner, Director
February 26, 2004
Page 4
ORS 279.445(4)(b). “(4) Each contract awarded by a public contracting agency
shall include a clause that requires the contractor to include in each subcontract
for property or services entered into by the contractor and a first-tier
subcontractor, including a material supplier, for the purpose of performing a
construction contract: * * * * *
(b)

An interest penalty clause that obligates the contractor, if payment is not
made within 30 days after receipt of payment from the public contracting
agency, to pay to the first-tier subcontractor an interest penalty on amounts
due in the case of each payment not made in accordance with the payment
clause included in the subcontract pursuant to paragraph (a) of this
subsection. A contractor or first-tier subcontractor shall not be obligated
to pay an interest penalty if the only reason that the contractor or first-tier
subcontractor did not make payment when payment was due is that the
contractor or first-tier subcontractor did not receive payment from the
public contracting agency or contractor when payment was due. The
interest penalty shall be:
(A)

For the period beginning on the day after the required payment
date and ending on the date on which payment of the amount due
is made; and

(B)

Computed at the rate specified in ORS 279.314(2).”

The words used in ORS 279.435(9) and the related provisions point to the date the payment is
due as being the date used for determining the discount rate of interest on commercial paper.
The legislature used similar language to amend these provisions in 1999, thereby creating a
uniform result.
The formula for each of these subsections is the same: the penalty for late payment shall
be a higher rate of interest, computed at two or three times the current 90-day commercial paper
rate on the date the payment was due (in most cases, 30 days after invoice was submitted to the
public agency, or 30 days after contractor received payment from the public agency). The
context of ORS 279.435(9) includes legislation that created or modified several statutes, all of
which deal with computation of penalty interest on late payments at various levels from the
public agency owner down through subcontractors. That context demonstrates that the
legislature intended those statutes, including ORS 279.435(9), to have a uniform meaning
regarding the data on which the interest rate is to be computed.
3.

The intent of the 1999 Legislature to change the meaning of ORS 279.435(9) is
shown by the history of HB 2895 and its various amendments.

If the text and context of a statute are plain, it is not necessary to consider legislative
history in order to construe the statute. We have, however, reviewed the history of this

Bruce A. Warner, Director
February 26, 2004
Page 5
legislation to see if it is in any way inconsistent with text. We conclude that the history is
consistent with the text.
Prior to 1999, the provision with which we are concerned was found in subsection (8) of
ORS 279.435. That provision governed the method of computing the rate of interest owed by the
public agency, and separately set forth the date from which interest was to accrue on progress
payments and other payments under dispute. Former subsection (8) read:
(a)

(b)

The public contracting agency shall pay, upon settlement or judgment in
favor of the contractor regarding any dispute as to the compensation due a
contractor for work performed under the terms of a public contract, the
amount due plus interest at the rate of two times the federal discount rate
as established by the Twelfth Federal Reserve Bank at the time of the
settlement or judgment but not to exceed 18 percent, accruing from the
later of:
(A)

The due date of any progress payment received under the contract
for the period in which such work was performed; or

(B)

Thirty days after the date on which the claim for the payment
under dispute was presented to the public contracting agency by
the contractor in writing or in accordance with the applicable
provisions of the contract.

Such interest shall be added to and not made a part of the settlement or
judgment. (Emphasis added.)

As a result of passage of HB 2895 in 1999, ORS 279.435(8) was renumbered to ORS
279.435(9), and the wording changed to that shown in part 2 above.
Former subsection (8) of ORS 279.435 required that the interest rate be computed as of
the date of settlement or judgment. The original version of HB 2895 did not make
comprehensive changes to all of the related penalty interest subsections, and did not even
mention ORS 279.435(8). The comprehensive changes came as a result of numerous changes
suggested by proponents, and debates in committee over the course of several months.
a.

House Bill 2895 was proposed to add an interest penalty for general
contractors that failed to promptly pay their subcontractors.

House Bill 2895, as introduced, contained only a single change to an interest computation
subsection of Chapter 279, Oregon Revised Statutes. The change added a new subparagraph (b)
of ORS 279.314(1) as follows:
If the contractor fails, neglects or refuses to make payment within 30 days after
receipt of payment from the public contracting agency to a person furnishing
labor or services in connection with the public contract, then the contractor shall

Bruce A. Warner, Director
February 26, 2004
Page 6
owe the person the amount due plus interest charges commencing at the end of the
30-day period and ending upon final payment. The rate of interest charged to the
contractor on the amount due shall equal three times the discount rate, and any
surcharge on the discount rate, on 90-day commercial paper in effect at the
Federal Reserve Bank in the Federal Reserve district that includes Oregon on the
date that is 30 days after the date when payment was received from the public
contracting agency. The amount of interest may not be waived. (Emphasis
added.)
Other language in House Bill 2895 was intended to disqualify a contractor from bidding, if it did
not make payment to the subcontractor within 60 days after the date on which payment was
received from the public contracting agency. This separate provision was to have been added as
subsection (3) of ORS 279.314.
b.

The first attempt to amend ORS 279.435 through House Bill 2895 resulted in
conflicting wording.

HB 2895, as introduced, contained only a provision for penalty interest computation on
the payment owed by a general contractor to its subcontractor (adding a new subparagraph (b) to
ORS 279.314(1)). By March 15, 1999, proposed amendments had been drafted to change some
of the original language of the bill and to add other provisions. Among other changes, the first
amended version, HB 2895-1, contained language that would have changed ORS 279.435(8) to
read:
8 (a) The public contracting agency shall pay, upon settlement or judgment in
favor of the contractor regarding any dispute as to the compensation due a
contractor for work performed under the terms of a:
(A)

Public Contract, the amount due plus interest at the rate of two
times the federal discount interest rate as established by the
Twelfth Federal Reserve Bank at the time of settlement or
judgment but not to exceed 18 percent [,]; or

(B)

Public contract for a public improvement, the amount due plus
interest at the rate specified in ORS 279.314 (2).

(b)

Interest shall accrue [accruing] from the later of:

(A)

The due date of any progress payment received under the contract
for the period in which such work was performed; or

(B)

Thirty days after the day on which the claim for the payment under
dispute was presented to the public contracting agency by the
contractor in writing or in accordance with applicable provisions of
the contract.

Bruce A. Warner, Director
February 26, 2004
Page 7

[(b)] (c) Such interest shall be added to and not made a part of the
settlement or judgment.
Minutes, House Committee on General Government (HB 2895), March 16, 1999, Exhibit
B, pages 4 – 5, submitted by Paul Phillips. (Bold type denotes new language; bracketed,
italicized language indicates deletions).
c.

House Bill 2895 was amended on April 6, 1999 to change several provisions
in ORS 279.314, ORS 279.345 and ORS 279.445 that governed computation
of penalty interest.

On April 6, 1999, the Committee on General Government issued a subsequent and more
comprehensive amended version of HB 2895. This version of the amended bill made statutes in
Chapter 279 governing interest computations and payments more uniform. From the text, it can
be seen that the same interest computation provisions were applied to payments owed at the
public agency level and general contractor level.
One change made by the April 6 version of House Bill 2895 was to ORS 279.314. The
language used in the amendment carried over the formulation in the original bill that the interest
would be calculated using the discount rate that existed on commercial paper on the date that is
30 days after the date when payment was received from the public contracting agency or the
contractor.
Three other changes addressed interest rate accrual and computation. The first of these in
the April 6 House Committee Amendments to House Bill 2895 was to change the method of
computation of interest for ORS 279.435(2) to read:
Public contracting agencies shall make progress payments on the contract
monthly as work progresses on a public contract for a public improvement.
Payments shall be based upon estimates of work completed that are approved by
the public contracting agency. A progress payment shall not be considered
acceptance or approval of any work or waiver of any defects therein. The public
contracting agency shall pay to the contractor interest [at the rate of one and onehalf percent per month] on the progress payment, not including retainage, due the
contractor. The interest shall commence 30 days after receipt of the invoice from
the contractor or 15 days after the payment is approved by the agency, whichever
is the earlier date. The rate of interest charged to the public contracting
agency on the amount due shall equal three times the discount rate on 90-day
commercial paper in effect at the Federal Reserve Bank in the Federal
Reserve district that includes Oregon on the date that is 30 days after receipt
of the invoice from the contractor or 15 days after the payment is approved
by the agency, whichever is the earlier date.
(Bold type denotes new language; bracketed, italicized language indicates deletions).

Bruce A. Warner, Director
February 26, 2004
Page 8

The next change that dealt with computation of penalty interest renumbered former ORS
279.435(8) to ORS 279.435(9), and modifed the language as follows:
[(8)(a)] (9)(a) The public contracting agency shall pay, upon settlement or
judgment in favor of the contractor regarding any dispute as to the compensation
due a contractor for work performed under the terms of a public contract, the
amount due plus interest at the rate of two times the [federal discount interest rate
as established by the Twelfth Federal Reserve Bank at the time of settlement or
judgment but not to exceed 18 percent,] discount rate on 90-day commercial
paper in effect at the Federal Reserve Bank in the Federal Reserve district
that includes Oregon on the date and accruing from the later of:
(A)

The due date of any progress payment received under the contract
for the period in which such work was performed; or

(B)

Thirty days after the date on which the claim for the payment
under dispute was presented to the public contracting agency by
the contractor in writing or in accordance with applicable
provisions of the contract.

(b)

Such interest shall be added to and not made a part of the
settlement or judgment.

The final change to House Bill 2895 that dealt with computation of penalty interest affected ORS
279.445, and also caused the interest computation method to be changed. The change read:
279.445 * * * * * (4) (b) An interest penalty clause that obligates the contractor, if
payment is not made within 30 days after receipt of payment from the public
contracting agency, to pay to the subcontractor an interest penalty on amounts
due in the case of each payment not made in accordance with the payment clause
included in the subcontract pursuant to paragraph (a) of this subsection:
(A)

For the period beginning [on the day after the required payment
date] at the end of the 30-day period and ending on the date on
which payment of the amount due is made; and

(B)

Computed at the rate specified in ORS [279.435] 279.314(2).

(Bold type denotes new language; bracketed, italicized language indicates deletions).
These changes to ORS 279.314, 279.345 and 279.445 in the April 6, 1999, amendments to HB
2895 resolved conflicts present in the original version of the bill. They also began to formulate
how the interest rate would be determined and when it would be set for payments owed by public
agencies and contractors.

Bruce A. Warner, Director
February 26, 2004
Page 9
Some of the remaining changes to House Bill 2895 that were introduced on April 6 were
designed to require the bidders on a public works contract to disclose a list of all subcontractors
that would be furnishing labor or materials (making changes to ORS 279.027; ORS 279.029);
and others were designed to provide a means to determine whether a contractor who failed to
make timely payments to subcontractors should be considered not qualified to hold a public
contract for a public improvement (to be added to ORS chapter 701).
d.

Further House and Senate amendments were made in May.

Proposed amendments to House Bill 2895 were made by the House on May 17 and 21
and by the Senate on May 21. For example, in the B-Engrossed House Bill, ORS 279.314(2)
was changed to read:
Every public contract for a public improvement shall contain a clause or condition
that, if the contractor or a first-tier subcontractor fails, neglects or refuses to
make payment to a person furnishing labor or materials in connection with the
public contract for a public improvement within 30 days after receipt of payment
from the public contracting agency or a contractor, then the contractor or firsttier subcontractor shall owe the person the amount due plus interest charges
commencing at the end of the 10-day period that payment is due under ORS
279.445(4) and ending upon final payment, unless payment is subject to a good
faith dispute as defined in ORS 279.445. The rate of interest charged to the
contractor or first-tier subcontractor on the amount due shall equal three times
the discount rate on 90-day commercial paper in effect at the Federal Reserve
Bank in the Federal Reserve district that includes Oregon on the date that is 30
days after the date when payment was received from the public contracting
agency or from the contractor, but the rate of interest shall not exceed 30
percent. The amount of interest may not be waived.
(Bold type denotes new language that did not appear in preceding printed version of the
bill).
ORS 279.314(3) was also amended, so that it would read:
Every public contract for a public improvement and every contract related to the
public contract shall contain a clause or condition that, if the contractor or a
subcontractor fails, neglects or refuses to make payment to a person furnishing
labor or materials in connection with the public contract, the person may file a
complaint with the Construction Contractors Board, unless payment is subject to
a good faith dispute as defined in ORS 279.445.
(Bold type denotes new language that was not in preceding printed version of the bill).

Bruce A. Warner, Director
February 26, 2004
Page 10
ORS 279.435(2) was further changed, so that the last sentence of ORS 279.435(2) would
read:
The rate of interest charged to the public contracting agency on the amount due
shall equal three times the discount rate on 90-day commercial paper in effect at
the Federal Reserve Bank in the Federal Reserve district that includes Oregon on
the date that is 30 days after receipt of the invoice from the contractor or 15 days
after the payment is approved by the agency, whichever is the earlier date, but the
rate of interest shall not exceed 30 percent.
(Bold type denotes new language that was not in preceding printed version of the bill).
ORS 279.435(9) was further amended, so that (9)(a) would read:
The public contracting agency shall pay, upon settlement or judgment in favor of
the contractor regarding any dispute as to the compensation due a contractor for
worked performed under the terms of a public contract, the amount due plus
interest at the rate of two times the [federal discount interest rate as established
by the Twelfth Federal Reserve Bank at the time of settlement or judgment but not
to exceed 18 percent,] discount rate, but not to exceed 30 percent, on 90-day
commercial paper in effect at the Federal Reserve Bank in the Federal Reserve
district that includes Oregon on the date and accruing from the later of * * *.
(Bold type denotes new language that was not in preceding printed version of the bill).
These changes applied the same interest rate computation provisions to first-tier subcontractors,
and capped the interest rate.
e.

The effect of HB 2895, as finally passed, was to conform the various sections
on method of interest rate computation so as to be uniform.

The provisions from the final version of HB 2895 concerning method of interest rate
computation were placed in subsections of ORS 279.314, ORS 279.435, and ORS 279.445. The
language and methodology is essentially the same in all sections (see the subsections quoted in
part 1 of this opinion). The methodology involves:
(1)
(2)
(3)
(4)

A penalty for nonpayment that is either two times or three times the
discount rate on 90-day commercial paper.
The discounted rate on commercial paper is the rate that existed on the
date when the payment should have been made.
The penalty rate of interest shall not exceed 30 percent.
The accrual date for interest follows a logical pattern from the public
agency level to general contractor and on to the various levels of
subcontractors.

Bruce A. Warner, Director
February 26, 2004
Page 11
f.

The declarations of the HB 2895 sponsors supported the concept of changing
all the penalty interest provisions to make the rate calculation as of the first
date the payment was due.

The intent of the legislature to make the interest penalty provisions consistent in the
method of determining the interest rate is clear from the history of the various amendments to
HB 2895, as discussed above. The language used in the various related statutes was made
similar; and the pattern of drafting amendments to HB 2895 inevitably moved the bill from
applying only to the general contractor’s interest penalty and payment obligations, to also
applying to the public agency’s obligations and the first-tier subcontractor’s obligations.
The comments made by proponents of the legislation at the April 6, 1999 discussion
before the House Committee on General Government demonstrate that the purpose of the bill as
amended was to make the method of computing penalty interest on delayed payments the same
for the general contractor, first-tier subcontractor, and the public agency. At the public hearing
on the bill on March 16, 1999, Paul Phillips (who was one of the most active proponents and
represented the Plumbing and Mechanical Contractors Association) testified before the House
Committee that when a general contractor receives payment for work done by a subcontractor,
the general contractor should pay the subcontractors promptly. Mr. Phillips went on to suggest
that all state agencies should comply with the prompt pay requirement (Minutes, House
Committee on General Government (HB 2895) March 16, 1999, Exhibit B, Tape 41 A, at 058).
Mr. Phillips’ written submission for the hearing in support of the -1 amendments to HB 2895
listed the key concepts of the amendments as including “Require public agencies to also comply
with the concepts of prompt pay,” and “Create prompt payment trail that moves from the public
agency to the prime to the subs or subs sub.” Later in the legislative process, Mr. Phillips,
identified one of the provisions of the amended bill as being “Ties all interest penalties to the
same standard (2 x Federal Reserve Discount Rate-cost of money) including the interest public
agencies have on progress payments to contractors that are late.” (Minutes, House Committee on
General Government, (HB 2895), April 1, 1999, Exhibit A, submitted by Paul Phillips).
The staff summary of the bill as amended through the meeting date of April 1, 1999, also
suggests that uniform treatment of interest rate computations was intended by stating that the bill
“Requires all public improvement contracts to include a clause specifying the amount of interest
to be charged if a contractor or subcontractor does not make payment within a certain time to
persons supplying labor or materials in connection with the contract. Modifies interest rate
penalties contained in contractor/subcontractor contracts. Specifies interest charge may not be
waived. Modifies interest rate penalty relating to progress payments on public improvement
contracts and settlement of payment disputes between agency and contractor.” (emphasis added)
The meaning of ORS 279.435(9) is clear from the plain and ordinary usage of the
language that appears in the statute. The interest rate to be used is the discount rate that existed
on 90-day commercial paper on the date the payment was due, and not on the date a settlement is
made or a judgment is entered.

Bruce A. Warner, Director
February 26, 2004
Page 12
House Bill 2895, as ultimately enacted in 1999, was a comprehensive plan for creating an
escalating series of penalties for late payment, and for providing an enforcement process to levy
the penalties. The prompt payment requirement moves from the public agency to the primary
contractor to the subcontractor and to sub-subcontractors. The language used to describe the
method of computing the penalty interest rate is as close to being uniform as possible, given the
variables that are being described.
The 1999 legislation changed ORS 279.435(2) to require the public agency to pay a
floating rate of interest on progress payments, instead of a fixed rate of one and one-half percent
per month. Interest is calculated at three times the discount rate on 90-day commercial paper “on
the date that is 30 days after receipt of the invoice from the contractor, or 15 days after the
payment is approved by the agency, whichever is the earlier date.” ORS 279.435(9) was
changed to require a public agency to pay interest at a floating rate of two times the discount rate
on 90-day commercial paper, on the later of (1) the due date of any progress payment to be made
under the contract, or (2) thirty days after the date on which the claim for the payment under
dispute was presented to the public contracting agency by the contractor in writing or in
accordance with the contract. The date of the settlement or judgment that resolves any dispute
between public agency and contractor over withheld payments is no longer relevant to the
computation of the penalty on the floating interest rate.
Sincerely,

Donald C. Arnold
Chief Counsel
General Counsel Division
DCA:KLK:RAW:nog:naw/GENE6094