{"id":900286,"date":"2022-08-24T16:06:45","date_gmt":"2022-08-24T22:06:45","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900286"},"modified":"2022-08-24T16:06:49","modified_gmt":"2022-08-24T22:06:49","slug":"pay-if-paid-legislation-virginia-3","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/pay-if-paid-legislation-virginia-3\/","title":{"rendered":"Final Thoughts on New Pay If Paid Legislation in VA"},"content":{"rendered":"\n

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

This past General Assembly session, and after a governor\u2019s amendment and with the convening of a study group, a\u00a0new statute banning so-called \u201cpay-if-paid<\/a>\u201d clauses\u00a0from enforcement was passed.\u00a0 Some of the key features of the legislation are as follows:<\/p>\n\n\n\n

It does not take effect until January 1, 2023, and,<\/p>\n\n\n\n

For those construction contracts in which there is at least one general contractor and one subcontractor:<\/p>\n\n\n\n

  1. It requires payment within 60 days of receipt of an invoice following the satisfactory performance of the work or within 7 days of receipt of payment by the Owner<\/li>
  2. It allows for retainage<\/li>
  3. It allows the higher-tier contractor to withhold money for improper performance<\/li>
  4. It requires that, in the event of withholding of payment, the withholding contractor must provide written notice of both the reason for withholding and the lower-tier subcontractor responsible for the non-compliance<\/li>
  5. It explicitly states that payment by to higher-tier contractor cannot be a condition precedent to payment unless the lower-tier subcontractor is in bankruptcy or is insolvent<\/li>
  6. It Provides that failure to abide by these rules will result in interest penalties pursuant to\u00a0Va. Code 2.2-4355<\/li><\/ol>\n\n\n\n

    In short, as of January 1, 2023, many of the clauses currently in construction contracts will be rendered invalid.<\/p>\n\n\n\n

    What questions still need to be answered?<\/p>\n\n\n\n

    One is whether\u00a0creative construction attorneys\u00a0can contract around the interest provision of the statute.\u00a0 While the statute itself does not bar provisions that create a smaller interest obligation, it does have mandatory language referencing the interest provisions of the\u00a0Virginia Public Procurement Act.\u00a0 Whether this language can be contracted around and whether the courts here in Virginia would enforce the lower interest rate much like those courts will enforce clauses that purport to shorten the limitations period to bring a contract action will be interesting.\u00a0 If the courts will, in fact, enforce such smaller interest provisions, the interest and penalties could be rendered essentially zero by a\u00a0well-drafted contract provision.\u00a0 I am skeptical that even the Virginia courts with their pro-contract bent will allow for this, but we shall see.<\/p>\n\n\n\n

    Another is whether notice is required every time retainage is withheld.  While the statute does explicitly allow for retainage provisions, it is unclear as to whether the withholding of retainage constitutes an act that requires notice.<\/p>\n\n\n\n

    A third question that will need to be answered either through good contract drafting or litigation is what, if any, teeth the provision requiring notice of which lower-tier subcontractor is responsible for any deficiency.  If a general contractor provides a reason for withholding, for instance, the wrong HVAC compressor was installed, but fails to state that the mechanical subcontractor was responsible, is the general contractor still liable for payment and interest?  If so, how far down the contractual chain does this requirement go?  If it is the supplier\u2019s error and the general contractor only names the subcontractor (and not its supplier), is that a violation of the statute?  If this is the case, then the statute requires more, not less, paperwork than before.<\/p>\n\n\n\n

    To conclude, there are policy arguments to be made on both sides of the pay-if-paid debate and those have seemingly been resolved by this statute.\u00a0 However, there remain questions to be answered and interpretations to be made as to what contractual provisions are necessary and what particular actions are required by the new legislation.\u00a0 As always, I highly recommend that all construction professionals affected by this statute consult with an\u00a0experienced Virginia construction attorney\u00a0to discuss how the last legislative session affects their business.<\/p>\n\n\n\n

    \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 This past General Assembly session, and after a governor\u2019s amendment and with the convening of a study group, a\u00a0new statute banning so-called \u201cpay-if-paid\u201d clauses\u00a0from enforcement was passed.\u00a0 Some of the key features of the legislation are as follows: It does not take effect until January 1, 2023, and,… Continue reading Final Thoughts on New Pay If Paid Legislation in VA<\/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":[9895,224,7568,357],"class_list":["post-900286","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contract","tag-pay-if-paid-clause","tag-virginia","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nFinal Thoughts on New Pay If Paid Legislation in VA - 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