Last year, the Virginia General Assembly passed into law a ban on the so-called pay-if-paid clauses, effective January 1, 2023. I shared my thoughts and concerns with the legislation as drafted at the time of its passage. During this most recent legislative session, and among some other construction-related bills, the General Assembly sought to clarify its past enactment.
The enrolled bill fills in certain gaps in the law as follows:
- For both private and public contracts, the General Contractor, if it has good reason to withhold any payment, now has a maximum of 50 days from receipt of a proper invoice to notify its subcontractor of the reason for the withholding, including the contractual noncompliance, the amount to be withheld, and the lower-tier subcontractor responsible for the contractual noncompliance.
- For private contracts, the Owner now has 45 days in which to provide any written notice of intention to withhold payment. This notice must include the specific contractual non-compliance and the dollar amount to be withheld. NB- Owners do not need to specify the subcontractor responsible for the non-compliance.
- For private contracts, all contracts between subcontractors and their lower-tier subcontractors or suppliers shall contain the same payment, notice, and interest provisions as must be included in any contractor-to-subcontractor contract where (1) the construction contract not related to a single-family residential project and (2) the value of the project or aggregate value of projects under the construction contract totals more than $500,000.
- Definitions were shortened and to some extent made consistent for public and private contracts.
- Contracts solely for professional services are exempted from the pay-if-paid ban.
The changes take effect on July 1, 2023.
My first impression is that these changes are good ones that actually provide some clarity. Only time, and likely litigation, will tell whether I am correct. I highly recommend that you review the text of the bill in full and consult with an experienced Virginia construction lawyer to assist you with any changes you may need to your construction contracts.
As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.
