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New Virginia Law Bans Contingent Payment Provisions in Construction Contracts | Cohen Seglias Pallas Greenhall & Furman PC

A new bill has been signed into law in Virginia that prohibits the use of contingent payment provisions on construction projects. The new legislation amends VA ST §§ 2.2-4354 and 11-4.6 and provides that “[p]ayment by the bash contracting with the contractor shall not be a issue precedent to payment to any decreased-tier subcontractor, no matter of that contractor getting payment for quantities owed to that contractor.” In other terms, Virginia will no extended permit “pay-if-paid” provisions in construction contracts.

 

This adjust is astonishing specified Virginia’s name for letting parties to negotiate and concur to almost any phrases in a deal. This departure from that plan will remove a contractor’s and a larger-tiered subcontractor’s capability to use “pay-if-paid” or “pay-when-paid” provisions to shift the possibility of an owner’s non-payment downstream to lower-tiered subcontractors. The regulation will turn into effective for all construction contracts signed after January 1, 2023.

In addition to the ban on contingent payment provisions, the amendments require any general public contract to contain a provision that tends to make a contractor liable for the full quantity owed to the subcontractor, except for “amounts otherwise reducible owing to the subcontractor’s noncompliance with the conditions of the agreement.” If withholding cash for non-compliance, the contractor ought to deliver the rationale for withholding the funds in a created discover.

These amendments also greatly enhance prompt payment protections for contractors in private contracts. The new law supplies that in prime contracts, the owner shall fork out the contractor in 60 days of an bill of any undisputed part of the function invoiced. Equally, in a subcontract, the contractor will have to pay back a subcontractor for undisputed portions of invoices “within the earlier of (i) 60 times of the satisfactory completion of the part of the function for which the subcontractor has invoiced or (ii) 7 times following receipt of amounts paid out by the operator to the standard contractor or by the increased-tier contractor.” The amended regulation extends the safety of the state’s prompt spend act to personal contracts as effectively, delivering that the “[f]ailure of a contractor to make well timed payment as provided in this subsection shall final result in interest penalties reliable with § 2.2-4355.”

The primary takeaway for contractors and larger-tiered subcontractors is that it will be more essential than ever to examine the fiscal affliction and trustworthiness of an proprietor on a project given that, in the occasion of non-payment by the proprietor, contractors will now be liable for payment to lessen-tiered subcontractors. Additionally, all contractors and subcontractors will need to have to assessment and revise their contracts to clear away any contingent payment provisions.

With the new law coming into impact on January 1, 2023, contractors and subcontractors really should commence hunting at their contracts, building important revisions, and comprehension how those revisions affect their functions.