In a move that was much anticipated, the Virginia senate recently passed legislation barring straight pay-if-paid clauses in construction contracts between General Contractors and Subcontractors. SB550 effectively nullifies, for both private and public construction contracts, the “condition precedent” pay-if-paid clauses that are sometimes the bane of a subcontractor’s existence. The Virginia House of Delegates passed its own substitute bill that essentially does the same thing (passed amended text here).
In short, now that the content, if not the exact wording, of the two bills has passed, it is only a matter of time until pay-if-paid clauses are a thing of the past. That content states that any payment application by a subcontractor that has complied with the terms of the subcontract must be paid either within 7 days of payment by the Owner or within 45 days of the application, whichever is sooner. Of course, a General Contractor can withhold payment for non-compliant work regardless of this soon to be passed legislation.
I will keep you posted on the final wording of the passed legislation and let you know in the event that Governor Youngkin makes any changes.
Should this legislation pass, all parties to the construction contracting process will need to have their contracts reviewed by experienced construction counsel to assure compliance with the new law.
UPDATE: The legislation has passed both chambers as amended and goes to the Governor’s desk for his signature. Here’s the final text that passed.
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