2021 Construction Related Bills to Keep an Eye On

Christopher G. Hill | Construction Law Musings

Each year here at Musings, I try and highlight some key construction industry-related bills that are winding their way through the Virginia General Assembly.  This year is no different, though this year does not have the action level that prior years have had.

Without further ado, here are those that I spotted and which I will be “Tracking” as they move through the sausage-making process:

HB2288– Virginia Public Procurement Act; construction contracts; requirement to submit list of subcontractors. Requires bidders or offerors on contracts for construction of $250,000 or more to submit along with their bid or proposal a list of all subcontractors, regardless of tier, that the bidder or offeror intends at the time of submitting the bid or proposal to use on the contract to perform work valued at $50,000 or more, including labor and materials. The bill requires such list to include certain information about each contractor. This bill also includes a re-passage provision that requires that it be re-enacted in the 2022 session to become effective.  Finally, the Senate General Laws and Technology committee has continued this to the First Special Session.

SB1209– Liability of general contractor for wages of subcontractor’s employees. Provides that there is a valid defense to a claim of nonpayment of wages by a general contractor to a subcontractor’s employees if the general contractor obtains a written certification that (i) the subcontractor and each of his sub-subcontractors has paid all employees all wages due for the period during which the wages are claimed for the work performed on the project and (ii) to the subcontractor’s knowledge all sub-subcontractors have also paid their employees. The bill also provides that the terms “general contractor” and “subcontractor” shall not include persons solely furnishing materials for the purposes of the liability of a contractor for wages due to a subcontractor’s employees.

This bill passed the House and was continued to Special Session 1 by Senate committee.

SB1305– Virginia Public Procurement Act; construction contracts; subcontractor workforce requirements. Requires all public bodies in a locality with a population in excess of 25,000 and covered institutions, defined in the bill, to include in every construction contract of more than $500,000 certain provisions related to the outsourcing of subcontracted work, which a contractor shall agree to during the performance of such contract. Such provisions mandate that a contractor shall only utilize subcontractors that certify in writing to the contract that they will outsource no more than 10 percent of the cost of the work subcontracted for, excluding the provision of materials, with specified exceptions.

Bill passed the Senate and has been postponed to the first Special Session by the House.

SB1108–  General district courts; jurisdictional limits. Increases from $25,000 to $50,000 the maximum civil jurisdictional limit of general district courts for civil actions for personal injury and wrongful death. The bill contains an emergency clause.

This Bill has passed the Senate and the House Civil Courts subcommittee has recommended reporting it out of committee with amendments.

As always, I recommend that you read the full text of these bills and consult a Virginia construction lawyer with questions.  If there are other bills of note that I have missed, please let me know in your comments or by email.

What Law Firms and Legal Organizations Should Consider Before Creating Their Own Apps

Danielle Braff | ABA Journal

When it comes to law firms and legal organizations, perhaps the question isn’t “Is there an app for that?” but “Should there be an app for that?”

We spoke with firms that decided to build their own apps, as well as with law analysts, to dig into their purpose and profitability.

Eric Goldman, professor at the Santa Clara University School of Law and co- director of its High Tech Law Institute, says law firms considering their own apps should answer two main questions. First, who is the target audience for the app? Is it existing clients? Prospective clients? The world at large? Or some other community?

“By clearly identifying the app’s audience, the law firm can then figure out how to measure the return on investment,” Goldman says.

Additionally, it will be much harder to measure the return on investment for an app designed to build the firm’s long-term brand than it will be to measure the returns for apps designed to convert prospective clients into actual clients, he says.

The second question: How much will it cost to maintain the app over time? This includes the costs of fixing bugs, keeping up with changes in technology and updating the content, where applicable. According to Goldman, firms must also determine who is going to own responsibility for that supervision, what the costs of that supervision are—both out-of-pocket and opportunity costs—and how those ongoing costs affect the return on investment.

For many law firms, apps don’t make any sense because their audiences don’t need them—or because the returns will be terrible.

“Most likely, the most successful apps will provide existing clients with better service or help to get more business from them. But even then, the apps should be driven by what clients want and should be evaluated carefully for ROI,” Goldman says.Kia Roberts

Kia Roberts: “Our clients immediately recognize the value of the app from a risk management perspective.” Photo by Carey Kirkella.

That’s the goal for Triangle Investigations’ app, which was launched and developed in 2019, says Kia Roberts, a lawyer and the founder and principal of Triangle Investigations.

The firm—which consists of lawyers and expert investigators performing misconduct investigations within workplaces, schools and other organizations—developed its own app called Telli, which is offered as an enhancement to clients.

“When we have concluded an investigation into allegations of misconduct within a client organization, many of our clients are worried about future misconduct and how they can keep their finger on the pulse of misconduct in real time,” Roberts says.

To create Telli, Roberts vetted and phone-screened many developers before landing on the one she felt could make the app she needed. Telli was designed to be a mechanism for employees to report misconduct, and Roberts says it eases anxiety for employers who wouldn’t otherwise know what’s going on within their companies.

“The outcome of the app has been great,” she says. “Our clients immediately recognize the value of the app from a risk management perspective and feel that it offers some protection against them getting hit with a sexual harassment lawsuit unaware.”

But Roberts also says creating an app is expensive, so she had to justify the cost of making it. Before creating an app, she suggests thoroughly researching the usefulness of it for your clients and crunching the numbers.

Other firms have created apps for public use.Gabriel Cheong

Gabriel Cheong: “Put yourself in your client’s shoes.” Photo by Nicole Chan Photography.

Gabriel Cheong, partner and owner of Infinity Law Group in Quincy, Massachusetts, says his firm has an app that calculates child support payments. The original iteration of the app was a partnership between Cheong and an app developer. But several years later, Cheong overhauled the app with the help of an app development company from India.

“Overall, it was a very collaborative process, and we had a lot of input into the design and functionality of the app itself,” he says.

Cheong decided to make the app because of the way Massachusetts child support payments are calculated: They involve many multiplications, percentages and conditional statements. While they built the app for themselves to use when they’re in court, it’s also available for the public. “Since we’ve built the app and released it to the public, most divorce lawyers in Massachusetts have it, pro se clients have downloaded it and even judges use it,” Cheong says.

The app also has helped with business. Cheong says his firm has received calls from potential clients who have used the app but realized they need extra help.

According to Cheong, the app has been successful because it helps with a concept that can’t easily be found elsewhere. “Put yourself in your client’s shoes,” Cheong says. “If your app doesn’t add to a functionality that already exists on a smartphone, then it’s useless.”

It’s also key to make an app that people will actually use, says Alex Hargrove, chief technology officer of NetLaw Group, a company that allows users to generate their own estate planning documents. Customer acquisition is the biggest cost of getting a new app to market: The iterations you have to go through to find that product market fit can quickly drain your business, he says.

Hargrove worked with his firm to create NetLaw Draft, which is expected to come to market in early 2021. Similar to the LegalZoom app, it will allow attorneys to connect to users by offering them an app to draft their own wills. “Ultimately, we hope to create a large market of potential clients who have all completed a free will in our system and are virtually prequalified as needing additional services,” Hargrove says.

He adds that while do-it-yourself has limitations, “by connecting attorneys with a burgeoning pool of DIY users and then providing the attorneys with a turnkey way to deliver bite-size add-on services, we hope to bring about a world where it’s not a choice between do-it-myself or pay for a full-service lawyer.”

Starting July 1, 2020 General Contractors are “Employers” for All Workers on Their Jobsite

Christopher G. Hill | Construction Law Musings

I have discussed the impactful legislation to the Virginia construction industry in prior posts here at Construction Law Musings.  One of those statutes that will take effect on July 1, 2020 will fundamentally change the relationships between general contractors and their subcontractors and suppliers.

Senate Bill 838 does the following on construction projects with a value of $500,000 or greater that are not single family residential construction projects:

  • Makes the general contractor, and all tiers of subcontractors on a particular project contractually liable to pay their subcontractors’ (at any tier) employees wages.
  • Requires that the payments are equal or exceed those required by other statutes.
  • Deems contractors to be the employers of their subcontractors’ employees for purposes of Va. Code Section 40.1-29 that imposes criminal and civil penalties for failure to pay wages when due, and
  • Grants employees a private right of action for any violations, including the right to a class or joint action, award of liquidated damages, reasonable attorney fees and possible treble damages for “knowing” violations by the contractor.

What does this mean? It adds a new liability for contractors for the failures of thier subcontractors and suppliers, entities over which contractors have no control aside from contractual provisions, to pay their employees.  It further encourages employees to bring these actions with its possible treble damages, class action rights and attorney fees provisions.  In short, it adds a whole lot more of a burden on contractors in Virginia to screen their subcontractors of every tier and all suppliers to those subcontractors, to assure that they are both willng and able to pay their employees and to keep tabs on all payments in the payment stream of a project.

If there is any good news in this new bill for general contractors, it is that the statute requires a subcontractor to indemnify the contractor for any damages paid by the contractor due to subcontractors failure to pay its own employees.  An exception to this requirement is where the non-payment of wages is due to the contractor’s failur to pay its subcontractor as required.  Of course, one reason for a subcontractor failing to pay wages it the subcontractors inability to due so because of financial difficulties due to anything from financial mismanagement to problems on other projects.  If that subcontractor simply can’t pay the wages, it certainly would have a difficult time paying any indemnification obligations.

What can you as a contractor in Virginia do to mitigate this risk?  Aside from working with a Virginia construction attorney to understand the various possible results of this new obligation, your contract will be key.  Among other steps you can take you should: take pre-qualification and identification of subcontractors and suppliers on your project a priority;  possibly require subcontractors to provide their own payment bonds; expand the contractual indemnity language to explicitly encompass payment of wages; require more explicit language relating to the payment of wages in your lien wavers and payment applications; and, look into expansions of your insurance coverages to protect against potential claims.

While the above list is far from exhaustive, and the true implications of this legislative change have yet to be seen, all contractors in Virginia should be aware of these new obligations.

Impactful Construction Legislation Enacted for 2020

Christopher G. Hill | Construction Law Musings

With COVID-19 dominating the news and planning for issues relating to it being a top priority for construction firms in Virginia, it is almost hard to remember that the Virginia General Assembly was in session and considering several bills with a direct effect on the construction industry.  I discussed several in prior posts and thought I’d put all of the latest updates and what has been signed into law by Governor Northam into one post.  My quick initial thoughts on the bills are in italics.

The following passed with the Governor’s recommended implementation date of May 1, 2021 due to the economic impact of COVID-19:

HB833 (identical to SB8)– Requires contractors and subcontractors under any public contract with a state agency, or with a locality that has adopted an ordinance requiring the payment of prevailing wages, for public works to pay wages, salaries, benefits, and other remuneration to any mechanic, laborer, or worker employed, retained, or otherwise hired to perform services in connection with the public contract for public works at the prevailing wage rate. The provisions of the bill would not apply to any contract for public works of $250,000 or less.

This bill essentially takes the prevailing wage requirements that are present on most federal projects and extends them to state projects.

SB182– Authorizes any public body, including any state or local government, when engaged in procuring products or services or letting contracts for construction, manufacture, maintenance, or operation of public works, to require bidders to enter into or adhere to project labor agreements on the public works projects.

This bill removes the long standing prohibition on union based PLA’s for Virginia public projects.  The economic impact of this on Virginia based contractors will not be known until this legislation becomes effective, but the AGC of Virginia and the ABC of Virginia both opposed the legislation.

The following bills have been signed by the Governor and are effective July 1, 2020:

HB1646– Provides that the Board for Contractors (the Board) shall require a contractor to appropriately classify all workers as employees or independent contractors, pursuant to law. Any contractor who is found to have intentionally misclassified any worker is subject to sanction by the Board.

This is one of many bills focussing on worker misclassification issues.  Virginia contractors should be even more diligent regarding the proper classification of those that work for and with them moving forward.

HB1300– Provides that an action against the surety on a performance bond shall be brought within five years after the completion of the contract. The bill further provides that the statute of limitations on construction contracts and architectural and engineering contracts is 15 years after completion of the contract. The bill specifies that completion of the contract is the final payment to the contractor pursuant to the terms of the contract, but that if a final certificate of occupancy or written final acceptance of the project is issued prior to final payment, the period to bring an action shall commence no later than 12 months from the date of the certificate of occupancy or written final acceptance of the project.  This seeks to address what has become known as the “Hensel Phelps” issue.

This bill is a good one and one that should create some certainty in the surety and construction fields relating to Virginia public projects.

SB838– Provides that an employee has a private cause of action against an employer who fails to pay wages to recover the amount of wages due plus interest at eight percent annually from the date the wages were due. If the court finds that the employer knowingly failed to pay wages to an employee, the court shall award the employee (i) reasonable attorney fees and other costs and (ii) an amount equal to triple the amount of wages due. Among other items, the bill further makes general contractors jointly and severally liable for its subcontractors of any tier’s failure to pay wages to employees for any instance where the general contractor knew or should have known that wages were not being paid.  In a bit of relief for contractors, this increased liability risk will not apply where the value of the construction project or aggregate of multiple projects under the same construction contract is below $500,000 or the project is the construciton of a single family residence.

This legislation is likely to increase costs for all construction projects because of the additional risk to general contractors that a remote employer outside of its control will fail to pay wages.  The construction cost increase from additional adminstrative burden alone could cause Owners to think twice before building anything. It could limit projects with a value of over $500,000.00 to only those larger general contractors that can absorb the additional costs or have the ability to get novel forms of bonding to hedge against this risk.

SB208– Specifies that the use of funds paid to a general contractor or subcontractor and used by such contractor or subcontractor before paying all amounts due for labor performed or material furnished gives rise to a civil cause of action for a party who is owed such funds. The bill further specifies that such cause of action does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials and that any contractual provision that allows a party to withhold funds due on one contract for alleged claims or damages due on another contract is void as against public policy.

A good change in the law for subcontractors and suppliers.  It further emphasizes the need for proper job by job acocunting and payment and decreases risk for subcontractors and suppliers that perform work on multiple projects for the same general contractor or subcontractor.

The actual effect of this legislation will show itself over time.  I highly recommend that you both read the actual bills (linked above) and consult with an experienced Virginia construction lawyer to discuss their effect on your construction businesses and contracts.