We have discussed the overwhelming need for precision in construction contract drafting on several occasions here at Musings. This need is illustrated with great clarity by the litigation surrounding the Granby Towers in Norfolk, Virginia. The circumstances surrounding the Granby Towers debacle have been well documented. For that reason, I will not re-iterate them here. This litigation continues to swirl and involved interpretation of pay if paid clauses, financial contingency clauses (thanks @timrhughes), and a large number of other claims by contractors, subcontractors and construction material suppliers.
Now, as pointed out at the Virginia Real Estate, Land Use & Construction Law blog by my good friend Heidi Meinzer of Bean Kinney & Korman, the 4th Circuit Court of Appeals upheld the Eastern District of Virginia’s decision to enforce a pay if paid clause in the contract between Turner Construction and Universal Concrete. This decision was despite an argument that the contract between the Owner and Turner created an ambiguity. Check out the opinion here.
The lesson from these cases and this latest 4th Circuit case? The contract is king in Virginia. Even in an extreme case such as the Granby Towers mess, the Courts in Virginia will stick to the contract. While this strict adherence to the deal hurt many the players at Granby Towers, the lesson is not all negative. Frankly, I find the strict interpretation of contracts to be a good thing. Contractors and subcontractors get to essentially create a deal with the assurance that a Virginia court will not decide that it could have created a better one. You can sleep well with the certainty that the rules of the game will not change months (or years) after the project is complete.
In short, if you, as a construction professional in Virginia, carefully draft your contracts and work with a construction attorney to assure that you at least know what the parameters of the deal are, you can do very well. Don’t be scared by contracts, just be careful.
UPDATE: Here is a great analysis of Virginia and the 6th Circuit Court of Appeals by @matthewdevries at his blog.
As always, I welcome and encourage your comments below, please share your thoughts. Also, please subscribe to keep up with the latest Construction Law Musings.
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Good points, and thanks for the reference to Heidi’s post as well.
The interesting sub-thread is that it feels like perhaps that primacy of contracts in Virginia has been just a wee bit reduced … like maybe they are prince, not king? That may be more of an anecdotal reaction at the state trial court level, still king when federal or appellate courts are considered I guess.
.-= Timothy R. Hughes´s last blog post ..Stimulus Funds, Dripping not Pouring, in Virginia?? =-.
There are always judges who wish to read stuff into contracts. However, the Virginia Supreme Court seems to stick to the contract more often than not. For better or worse, many of the cases get settled so the appellate courts don’t get a crack at them. Thanks for the comment.
.-= Christopher G. Hill´s last blog post ..Old and New Business Strategies to Weather the Construction Recession =-.
Interesting. In North Carolina, “pay when paid” clauses are void by statute as against public policy.
Not in our fair Commonwealth. A lot of states have such statutes, but here in VA, they are enforceable if carefully drafted.
.-= Christopher G. Hill´s last blog post ..Economic Loss Rule not Absolute in Construction =-.
Chris,
Thanks so much for the shout out! Sorry I didn’t leave a comment earlier. I do appreciate bouncing ideas off of you and getting your perspective. It is most interesting to see how other folks view Virginia’s way of seeing the contract as king. If you know what you’re doing, get advice before you sign the contract, and are up front with the other side about potential sticky issues, Virginia’s way of dealing with contracts can really be the way to go! Take care and enjoy the oncoming Spring!
Heidi
Thanks Heidi. I appreciate being able to play off of you guys up there in NOVA.
.-= Christopher G. Hill´s last blog post ..Run a Job Smoothly- And Turn a Profit Doing It =-.
I think Virginia has the right idea; a contract should be very specific, particularly in the area of construction as there are so many aspects that can go wrong. It’s the only way a working relationship can be truly fair. As long as both parties read the document before signing it and are fully aware of its conditions, they then have no right to dispute it should something happen. The construction industry can be a complicated area, so contracts have to be very clear and clarify every point. My advice is to get an agent who specialises in construction law and have them look through the contract before signing anything.