{"id":899773,"date":"2022-03-31T15:39:22","date_gmt":"2022-03-31T21:39:22","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=899773"},"modified":"2022-03-31T15:39:27","modified_gmt":"2022-03-31T21:39:27","slug":"pay-if-paid-legislation-virginia","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/pay-if-paid-legislation-virginia\/","title":{"rendered":"Thoughts on New Pay if Paid Legislation"},"content":{"rendered":"\n

Christopher G. Hill | Construction Law Musings<\/a><\/p>\n\n\n\n

Recently, the Virginia General Assembly closed its session\u00a0having passed legislation\u00a0essentially banning \u201cpay if paid<\/a>\u201d clauses in construction contracts, both public and private.\u00a0 Assuming that Governor Youngkin signs the bill into law on or before his deadline of April 11, 2022, the following new requirement will be grafted into any Virginia construction contract:<\/p>\n\n\n\n

Such contract shall require such higher-tier contractor to pay such lower-tier subcontractor within the earlier of (i) 45 days of the satisfactory completion of the portion of the work for which the subcontractor has invoiced or (ii) seven days after receipt of amounts paid by the owner to the general contractor or by the higher-tier contractor to the lower-tier contractor for work performed by a subcontractor pursuant to the terms of the contract.<\/strong><\/em><\/p><\/blockquote>\n\n\n\n

This is the main operative language (the 45-day payment requirement is also applied to project owners), but the legislation also imposes certain other notice duties upon both the owner and any higher-tier contractor on a construction project.  Interestingly, the legislation does not include a provision making it only effective for those contracts entered into after its effective date.  More on that later.<\/p>\n\n\n\n

As a\u00a0Virginia construction attorney\u00a0that routinely represents construction professionals here in the Commonwealth, this represents a sea change in construction contracting akin to the earlier ban on\u00a0pre-payment waiver of lien rights by contract.\u00a0 This legislation can be seen as a boon for subcontractors that felt that they were required to finance the project while general contractors were able to wait on payment until the owners got around to paying the general contractor, regardless of the reasons for the owner\u2019s non-payment.\u00a0 Should this legislation pass, project owners and general contractors will be required to either pay the downstream contractors within a maximum of 45 days from completion of the work or provide reasons in writing for any non-payment, including the names of the lower-tier subcontractor(s) that provided the faulty performance justifying the non-payment.<\/p>\n\n\n\n

Among the various questions that would have to be ironed out, presumably in court, are the following:<\/p>\n\n\n\n

  1. What about contracts entered into prior to the effective date of the legislation?<\/em>  The argument can be made that because the legislature did not explicitly state that the legislation is not retroactive, the ban on pay-if-paid applies to all<\/em> construction contracts currently in place.  While this seems harsh, the General Assembly has explicitly stated that certain legislation only affects actions after that legislation\u2019s effective date but did not do so here.  It will certainly be a point of litigation moving forward.<\/li>
  2. How will retainage be handled?<\/em>  Owners routinely withhold a percentage of the amount of any payment application from the general contractor by contract.  Will owners now have to provide notice every time such payment is withheld?  What effect does that have on a general contractor\u2019s ability to withhold that same retention?  Unlike the mechanic\u2019s lien<\/a> statutes that state that retention is not subject to the 150-day rule<\/a>, this bill does not mention retention in any way, leaving the door open to an argument that at the very least the owner would have to notify the general contractor every time it withholds retention.<\/li>
  3. What if a higher-tier owner or contractor misidentifies the lower-tier subcontractor at fault?<\/em>  Does this misidentification nullify any notice and subject the higher-tier entity to the interest and penalties in the statute?  What if there is a change in the trade subcontractor performing a certain scope of work and that is not communicated up the chain?<\/li><\/ol>\n\n\n\n

    I raise these questions because I think they will play out in the courts of the Commonwealth of Virginia absent some clarity.  I also believe that construction contracts should take them into account.  For instance, higher-tier contractors and owners should routinely require a list of lower-tier subcontractors and further impose a requirement that this list is updated if there are changes.<\/p>\n\n\n\n

    I would love to hear other questions that you as readers come up with when reading the legislation.\u00a0 I am sure I haven\u2019t hit on all points of potential controversy.<\/p>\n\n\n\n

    <\/p>\n\n\n\n

    When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Christopher G. Hill | Construction Law Musings Recently, the Virginia General Assembly closed its session\u00a0having passed legislation\u00a0essentially banning \u201cpay if paid\u201d clauses in construction contracts, both public and private.\u00a0 Assuming that Governor Youngkin signs the bill into law on or before his deadline of April 11, 2022, the following new requirement will be grafted into… Continue reading Thoughts on New Pay if Paid Legislation<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,224,289,357],"class_list":["post-899773","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contract","tag-pay-if-paid","tag-virginia","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nThoughts on New Pay if Paid Legislation - 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