Impactful Construction Legislation Enacted for 2020

With COVID-19 dominating the news and planning for issues relating to it being a top priority for construction firms in Virginia, it is almost hard to remember that the Virginia General Assembly was in session and considering several bills with a direct effect on the construciton industry.  I discussed several in prior posts and thought I’d put all of the latest updates and what has been signed into law by Governor Northam into one post.  My quick initial thoughts on the bills are in italics.

The following passed with the Governor’s recommended implementation date of May 1, 2021 due to the economic impact of COVID-19:

HB833 (identical to SB8)– Requires contractors and subcontractors under any public contract with a state agency, or with a locality that has adopted an ordinance requiring the payment of prevailing wages, for public works to pay wages, salaries, benefits, and other remuneration to any mechanic, laborer, or worker employed, retained, or otherwise hired to perform services in connection with the public contract for public works at the prevailing wage rate. The provisions of the bill would not apply to any contract for public works of $250,000 or less.

This bill essentially takes the prevailing wage requirements that are present on most federal projects and extends them to state projects.

SB182– Authorizes any public body, including any state or local government, when engaged in procuring products or services or letting contracts for construction, manufacture, maintenance, or operation of public works, to require bidders to enter into or adhere to project labor agreements on the public works projects.

This bill removes the long standing prohibition on union based PLA’s for Virginia public projects.  The economic impact of this on Virginia based contractors will not be known until this legislation becomes effective, but the AGC of Virginia and the ABC of Virginia both opposed the legislation.

The following bills have been signed by the Governor and are effective July 1, 2020:

HB1646– Provides that the Board for Contractors (the Board) shall require a contractor to appropriately classify all workers as employees or independent contractors, pursuant to law. Any contractor who is found to have intentionally misclassified any worker is subject to sanction by the Board.

This is one of many bills focussing on worker misclassification issues.  Virginia contractors should be even more diligent regarding the proper classification of those that work for and with them moving forward.

HB1300– Provides that an action against the surety on a performance bond shall be brought within five years after the completion of the contract. The bill further provides that the statute of limitations on construction contracts and architectural and engineering contracts is 15 years after completion of the contract. The bill specifies that completion of the contract is the final payment to the contractor pursuant to the terms of the contract, but that if a final certificate of occupancy or written final acceptance of the project is issued prior to final payment, the period to bring an action shall commence no later than 12 months from the date of the certificate of occupancy or written final acceptance of the project.  This seeks to address what has become known as the “Hensel Phelps” issue.

This bill is a good one and one that should create some certainty in the surety and construction fields relating to Virginia public projects.

SB838– Provides that an employee has a private cause of action against an employer who fails to pay wages to recover the amount of wages due plus interest at eight percent annually from the date the wages were due. If the court finds that the employer knowingly failed to pay wages to an employee, the court shall award the employee (i) reasonable attorney fees and other costs and (ii) an amount equal to triple the amount of wages due. Among other items, the bill further makes general contractors jointly and severally liable for its subcontractors of any tier’s failure to pay wages to employees for any instance where the general contractor knew or should have known that wages were not being paid.  In a bit of relief for contractors, this increased liability risk will not apply where the value of the construction project or aggregate of multiple projects under the same construction contract is below $500,000 or the project is the construciton of a single family residence.

This legislation is likely to increase costs for all construction projects because of the additional risk to general contractors that a remote employer outside of its control will fail to pay wages.  The construction cost increase from additional adminstrative burden alone could cause Owners to think twice before building anything. It could limit projects with a value of over $500,000.00 to only those larger general contractors that can absorb the additional costs or have the ability to get novel forms of bonding to hedge against this risk.

SB208– Specifies that the use of funds paid to a general contractor or subcontractor and used by such contractor or subcontractor before paying all amounts due for labor performed or material furnished gives rise to a civil cause of action for a party who is owed such funds. The bill further specifies that such cause of action does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials and that any contractual provision that allows a party to withhold funds due on one contract for alleged claims or damages due on another contract is void as against public policy.

A good change in the law for subcontractors and suppliers.  It further emphasizes the need for proper job by job acocunting and payment and decreases risk for subcontractors and suppliers that perform work on multiple projects for the same general contractor or subcontractor.

The actual effect of this legislation will show itself over time.  I highly recommend that you both read the actual bills (linked above) and consult with an experienced Virginia construction lawyer to discuss their effect on your construciton businesses and contracts.

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