Oregon Court of Appeals Clarifies Timing Rule for Construction Liens

Blake Robinson | Davis Wright Tremaine | August 8, 2019

Under Oregon law, a contractor or subcontractor must file a construction lien within 75 days “after the person has ceased to provide labor, rent equipment or furnish materials or 75 days after completion of construction, whichever is earlier.” ORS 87.035(1). But when does the 75-day period run when a subcontractor fully completes its work on a project, but is called back months later for additional work?

In a recent case, Bethlehem Construction, Inc. v Portland General Electric Company, the Oregon Court of Appeals determined that the 75-day period ran from completion of the additional work. 298 Or App 348, — P3d —- (2019). The court primarily based its conclusion on the fact that the subcontractor performed the additional work under a change order that specifically referenced the original contract.

Accordingly, contractors and subcontractors who are called back to a job to perform additional work and who have not already filed a construction lien should request a change order referring back to the original contract. Likewise, owners should recognize that even if a contractor or subcontractor fails to file a construction lien within 75 days of completion of the original work, the contractor or subcontractor’s lien rights can be revived if the contractor or subcontractor is called back to perform additional work under a change order that refers back to the original contract.

In Bethlehem Construction, PGE hired a general contractor, Abeinsa, for the construction of a power plant. Abeinsa, in turn, subcontracted with Bethlehem Construction. Under the subcontract, Bethlehem agreed to manufacture concrete panels for Abeinsa.

Bethlehem completed its work and issued a final invoice, but did not file a lien within the ensuing 75 days. Around eight months later, Abeinsa requested that Bethlehem return to the project to evaluate damage to the panels caused by a different subcontractor.

Bethlehem and Abeinsa signed a “Change Order Request” listing the original contract number and name in the “reference” field and describing a “scope of change” to the original contract. Bethlehem completed the work and, within 75 days of doing so, recorded a lien covering both the original and change order work.

The Oregon Court of Appeals concluded that Bethlehem’s lien was timely because all of the evidence (specifically, the language in the Change Order Request referring to the original contract) demonstrated that the parties intended the original and subsequent work to be “two parts of one single contract.”

The court also concluded that the later work was not “trivial or trifling”—which was significant because the 75-day deadline to record a lien is not extended by the contractor or subcontractor returning to the project to perform “some trifling work or a few odds and ends after apparently completing the job and removing its equipment.” Here, the later work was not trivial or trifling because the Change Order Request specifically required the work, and the work was “significant to the project.”

  1. A construction lien must be recorded within the earlier of 75 days of the contractor or subcontractor stopping its work on the project or completion of construction.
  2. If a contractor or subcontractor completes its work on a project but later is called back to do additional, related work, and it performs that work under a change order that specifically refers back to the original contract, the 75-day period will likely run from the date the later work is completed.
  3. If the later work is not required by the original contract or a change order, or is not significant to the project, the 75-day period will likely run from the date the original work was completed.

New Oregon Gross Receipts Tax Presents Special Challenges for Construction Projects Located in Oregon

Lewis Horowitz and Eric Kodesch | Lane Powell | June 10, 2019

Oregon has enacted a new gross receipts tax (the “Oregon CAT”), largely based on the Ohio commercial activity tax (“Ohio CAT”), but with significant differences.  We issued a legal update with a detailed summary of the Oregon CAT and its effect on businesses with Oregon-sourced receipts — for the construction industry that includes projects located in Oregon.  Generally, the Oregon CAT imposes a 0.57% tax on “taxable commercial activity” in excess of $1 million, with a subtraction for 35% of the greater of (a) “cost inputs” or (b) “labor costs,” apportioned to Oregon.  Taxable commercial activity is generally defined as Oregon-source gross receipts.  The Oregon CAT goes into effect on January 1, 2020.

The Oregon CAT could prove especially burdensome for the construction industry, particularly for general contractors and design professionals, because a substantial portion of gross revenue received often is dedicated to the payment of subcontractors, suppliers and subconsultants (who each will again pay the Oregon CAT on their Oregon-source gross receipts).  Further, the statute does not provide transition relief for contracts entered into before the Oregon CAT could be factored into bids and contract prices.  

Potential Exclusion

The Oregon CAT excludes from gross receipts, “[p]roperty, money and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee or other remuneration.”  The scope of this exclusion has not been defined for purposes of the Oregon CAT and the Oregon Department of Revenue (ODOR) may provide guidance about the exclusion. 

In Ohio, an identical exclusion may apply to amounts received by a general contractor or design professional and paid to a subcontractor, supplier or subconsultant, depending on the contractual relationships between the owner, contractor/design professional, and subcontractor/supplier/subconsultant.  Specifically, the Ohio Department of Revenue has issued administrative rules generally indicating that: 

  • A contractor’s gross receipts include amounts the contractor receives under a typical lump sum (including fixed price or GMP) contract in which the contractors bears the risks of the subcontractor/supplier costs.
  • A contractor’s gross receipts exclude amounts the contractor receives under a cost-plus contract, other than the amounts above cost (i.e., the plus factor).

The regulations interpreting and implementing the Ohio CAT do not apply in Oregon.  Nonetheless, it seems logical that the ODOR might consider the Ohio rules for guidance, at least initially.  Accordingly, the Ohio lump sum contact versus cost-plus contract distinction could serve as a foundation for Oregon regulations when developed.  ODOR will need to address these and other questions, such as whether a lump sum contract could make the contractor the owner’s agent with respect to the amount paid to subcontractors or suppliers. Of course it would be preferable to avoid this problem completely through a change in the law.   

The Oregon legislature is already considering ways to address some of the problems created by, and objections to, the Oregon CAT.  Late last week draft proposed amendments were submitted to HB 2164-1.  This bill will be the vehicle this session for “technical corrections”  Payments to subcontractors are addressed favorably in Section 1 of the proposed amendment, via a proposed revision to Section 58(1)(b) of the Act.  Specifically, proposed subsection (UU)(ii) on page 8 (italicized below) would amend the definition of “commercial activity” subject to the Oregon tax to exclude:

 “[(QQ)] (UU) Revenue received by a business entity that is mandated by contract or subcontract to be distributed to another person or entity if the revenue constitutes:

(i) [certain commissions paid to commission sales contractors such as split real estate commissions, etc., as described above]…; and

(ii) Subcontracting payments under a contract or subcontract entered into by a business entity to provide services, labor or materials in connection with the actual or proposed design, construction, remodeling, remediation or repair of improvements on real property or the location of the boundaries of real property.”

Sections 7-10 would be of particular interest if any of your contracts qualify. 

The Joint Committee on Tax Expenditures is scheduled to meet on June 14, 2019 at 8:30 a.m. to consider the proposed amendment.  You should discuss this opportunity with your government-relations team, lawyers or lobbyists to ensure that any concerns you have with the Oregon CAT are timely addressed with legislative leadership, or at least to express support for the proposed language quoted above.  The technical corrections bill is likely to move very quickly.

In the meantime, anyone involved in the construction industry should review their existing contracts to determine who may be obligated to pay for cost increases as a result of this new tax. 

How To File A Complaint With The Oregon Division of Financial Regulation About Your Delaying, Denying and Bad Treating Insurance Company

Daniel Veroff | Property Insurance Coverage Law Blog | May 10, 2019

When Oreganians are mistreated by their insurance companies, they can turn to the state government for help. Oregon’s Division of Financial Regulation has the authority to accept and investigate complaints by consumers.

Filing a consumer complaint can be done on the Division’s website and is an easy process. The website includes a fillable form that asks some basic questions about the insurance at issue. It then asks for a description of the issues, and for the insured’s thoughts on what would constitute a fair resolution.

According to the Division, most complaints are resolved within 60 days. The Division states:

Once we receive a complaint, an advocate will:

• Let you know in writing that we received your complaint

• Send a copy of your complaint to the insurance company, agent, or both

• Obtain a detailed response from the company, agent, or both

• Analyze the response and any supporting documents (the company or agent must respond within three weeks)

• Determine whether more information is needed or there is a possible violation

• Advise you of our findings.

The Division’s website also cautions as to what it can and cannot do in response to a compliant:

Oregon also offers a neat tool on its website for searching to find complaint comparable to yours.1 If you find that your insurance company is treating many customers the same way, you may be able to use that as leverage against your insurance company or with the Division to get extra help. The website also has other information about past complaints that can be helpful, including annual summaries.2

To contact the Division, you can go onto their website, the links in the footnotes, or contact as follows:

Phone: 888-877-4894 (toll-free)
Email: DFR.InsuranceHelp@oregon.gov

If you are not certain of your insurance claim rights or if you have questions about your policy benefits, please do not hesitate to call Merlin Law Group attorneys.
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1 https://dfr.oregon.gov/help/complaints-licenses/Pages/complaint-compare-search-tool.aspx
2 https://dfr.oregon.gov/help/complaints-licenses/Pages/complaint-information.aspx


The Skyscrapers of the Future Will Be Made of Wood

David J. Petersen | Tonkon Torp. | September 6, 2018

On August 8, the Oregon Building Codes Division approved a new state building code called a Statewide Alternate Method. The new code authorizes the construction of wood buildings taller than six stories, which was the previous limit. Taller wood buildings have been made possible by technological advances with cross-laminated timber. CLT, as it is known, is constructed by layering perpendicular sheets of solid lumber and adhering them together. It is similar to plywood, but much thicker, creating the necessary structural support for a high rise building. 

CLT has numerous advantages over steel, masonry and concrete. It is lighter and more flexible, which provides excellent seismic resilience, reduces the need for deep foundations and shortens construction time. The base material is easily adaptable to different uses by adding or removing layers to create the desired thickness and strength. As a wood product it sequesters carbon and can be sourced from a renewable, sustainable resource. Materials can be prefabricated off site, potentially lowering construction costs. Disadvantages include current higher production costs and weak sound insulation properties. While an increased risk of fire may seem logical, in fact CLT has been shown to have equal or better fire resistance than other non-carbon based construction materials.

CLT is in common use in Europe, and the largest CLT building currently in existence is Dalston Lane, a mixed use complex in Hackney in the U.K., with towers as tall as 10 stories. The Framework Building, a mixed retail, office, and residential tower to be constructed in Portland’s Pearl District, would have topped Dalston Lane at 12 stories, but due to development challenges the project is currently on hold. Portland also hosts the USA’s first CLT building, the four-story Albina Yard.

Despite the temporary setback of the Framework project and the manufacturing defects recently found in CLT used in a project at Oregon State University, CLT has loads of promise as the high-rise construction material of the future. By using sustainably-sourced wood or wood that would otherwise go to waste (much CLT in the market today is made from pine beetle-infested trees), the carbon footprint of new high-rises can be reduced significantly. As costs come down, as they do with all successful new technologies, expect to see CLT structures rise near you.

Before skyscrapers first touched the sky in New York and other cities over 100 years ago, most buildings were built of wood. The structural limitations and fire risk of wood kept buildings short, to perhaps five or six stories at most. Steel and concrete allowed architects to blow past those limitations. Now, with the advances made possible by CLT, our built environment is on the verge of completing a full circle to the space age wood structure of the future.

Oregon Anti-Indemnity Statute Voids Sub-sub’s Duty to Indemnify Sub for the Sub’s Own Negligence

Amandeep S. Kahlon | Buildsmart | August 7, 2018

The Ninth Circuit Court of Appeals recently upheld the application of Oregon’s anti-indemnity statute to a contractual indemnity provision requiring a sub-subcontractor’s insurer to indemnify the subcontractor for the subcontractor’s own negligence. In First Mercury Insurance Company v. Westchester Surplus Lines Insurance Company, Multnomah County contracted with a general contractor for the renovation of a bridge. The general contractor hired a subcontractor to furnish materials including reinforced decking. The subcontractor, in turn, contracted with a sub-subcontractor to manufacture the decking material. The sub-subcontract required the sub-subcontractor to indemnify the subcontractor for the subcontractor’s own negligence in causing damage to a third party—in this instance, the County.

After the project was completed, several defects in the bridge were discovered, including cracks in the decking. When the County sued, the subcontractor was found to have been negligent and partially liable for the defects and resulting damage to the County. The subcontractor claimed indemnity from the sub-subcontractor per the terms of the sub-subcontract, but the trial court refused to enforce the indemnity provision because it was void under Or. Rev. Stat. § 30.140(1). The relevant portion of the statute provides that any provision in a construction agreement that requires a company or its insurer/surety to indemnify another against liability for damage to property caused in whole or in part by the negligence of the indemnitee is void. Citing the plain language of the statute, the Ninth Circuit affirmed the trial court’s judgment denying indemnity.

The Ninth Circuit opinion serves as an important reminder of the variety of anti-indemnity provisions across the nation. Many states take Oregon’s approach and restrict the scope of indemnity provisions to cover only the negligence of the indemnitor and not the negligence of the indemnitee. Other states have more lenient anti-indemnity statutes or no anti-indemnity provision at all. Still others take a harsher approach than Oregon and impose stricter limitations in their anti-indemnity laws and may even have different laws for different industries.

When negotiating agreements for work outside your company’s traditional footprint, consider whether the state where the project is located has an anti-indemnity statute and how it is applied. Indemnity provisions in construction contracts can be exceptionally consequential in terms of allocating risk between parties, so it is essential to understand how such provisions will be applied and enforced in any particular state before executing an agreement and moving forward with a project in that state.