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General Contractor Risk Increases with New Virginia Law Are Pay When Paid Provisions now Void in Virginia?

 

James D. Fullerton
Fullerton & Knowles, P.C.
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The Virginia Code has been amended to protect subcontractors, lower tiered sub-subcontractors and material suppliers from waiving their lien and bond rights in a subcontract or supply agreement signed in advance of furnishing any labor, services, or materials. The amendments similarly protect the right to assert claims for demonstrated additional costs due under the contract (change orders and claims). Two very similar provisions were added to the existing Mechanic's Lien Code § 43-3 and in the Contracts Code by adding a new §11-4.1:1. See the entire text of the amendments here

These amendments will prevent general contractors from obtaining waivers of lien rights, bond rights and claims in subcontract agreements. Subcontractors are also prevented from obtaining such waivers in their sub-subcontracts. Suppliers appear to be protected wherever they are on the contract tiers. It appears that general contractors have no such protection. Owners will still be able to obtain such waivers in the general contract documents.

The protections also only exist in contracts signed in advance of furnishing any labor, services, or materials. In other words, it appears that a subcontractor or suppliers could still waive these rights if their contract is not actually signed until after they have begun work on the project.

Similarly, it is still possible to waive lien and bond rights for future deliveries in any other document signed after the claimant begins work. This includes progress payment waivers. General contractors, subcontractors and suppliers always have to be careful reviewing progress payment waivers to make sure they are not waving rights for future deliveries, for change orders, or for retention. See a newsletter on this subject here

These amendments are effective July 1, 2015. This certainly means the protections exist for any contract signed after this date.

Virginia is now in line with Maryland, which prohibits lien and bond waivers in contracts. Maryland is actually more protective, since such wavers are prohibited until work under the contract is complete. In other words, it does not matter whether the contract is signed after work begins. However, the Maryland provisions do not protect waivers of change orders or claims. The amendment also bring Virginia more in line with the federal Miller Act, which states that a payment bond waiver is void unless executed after the claimant has furnished labor or material.

The text of the Virginia amendments is as follows:

Contracts Code §11-4.1:1. Waiver of payment bond claims and contract claims; construction contracts.

 

A subcontractor as defined in §43-1, lower-tier subcontractor, or material supplier may not waive or diminish his right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor's, lower-tier subcontractor's, or material supplier's right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.

 

Mechanic's Lien Code §43-3 (C). Any right to file or enforce any mechanics' lien granted hereunder may be waived in whole or in part at any time by any person entitled to such lien, except that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish his lien rights in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor's, lower-tier subcontractor's, or material supplier's lien rights in a contract executed prior to providing any labor, services, or materials is null and void. In the event that payments are made to the contractor without designating to which lot the payments are to be applied, the payments shall be deemed to apply to any lot previously sold by the developer such that the remaining lots continue to bear liability for an amount up to but not exceeding the amount set forth in any disclosure statement filed under the provisions of subsection B.

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Readers are welcome to reprint or republish this article with the following attribution:

© (2015) James D. Fullerton, Fullerton & Knowles, P.C. Clifton, VA (703) 818-2600

 

 

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