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Thursday, May 5, 2016

Two Big Legal Developments Hit the Construction Landscape

Two major recent changes impact the enforceability of Virginia construction contracts. These changes make certain contractual waivers “null and void” as a matter of law.


First, waivers of mechanic’s lien rights executed before work begins or materials are supplied by subcontractors or material suppliers are now null and void.

This change is found in Virginia’s mechanic’s lien statute. Specifically, Section 43-3 of the Virginia Code is now amended with this italicized language:
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.
Second, waivers of rights to payment bond claims and claims for “demonstrated additional costs” executed before work begins or materials are supplied by subcontractors or material suppliers are null and void.

This second change adds a new section to Virginia law on payment bonds and claims for demonstrated additional costs. This section is contained in Section 11-4.1:1 of the Virginia Code:
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.
This new section adds broad protections for subcontractors and material suppliers on the change order front. Change order procedures in construction contracts can be overly complicated and as a result, it can be easy for a subcontractor or material supplier to let a change order claim slip through its fingers. Subcontractors and material suppliers can use this new change as leverage to negotiate change order procedures. For example, many change order procedures require a change order claim to be brought within a certain (sometimes short) time window. Under the new Virginia law, change order language mandating strict time limits to bring claims may be negotiated in favor of a subcontractor or material supplier if there is an argument that it “diminishes” the subcontractor or material supplier’s right to assert a claim for demonstrated additional costs in a contract.

In sum, here are the take-home points about the recent changes to Virginia construction law:

  • Prohibited Waivers: Subcontracts and material supplier contracts cannot contain the waivers.
  • Allowed Waivers: Contracts between owners and general contractors can contain the waivers. Further, subcontractors and material suppliers can waive the aforementioned rights after any work starts or materials are supplied.
  • Change Order Procedures as a Negotiation Point: Savvy subs and material suppliers can use Virginia’s new rule banning pre-work waivers of claims for demonstrated additional contract costs to negotiate burdensome change order requirements in their favor.

Katie Lipp is a Senior Associate Attorney and head of the construction practice at Berenzweig Leonard LLP. She can be reached at klipp@BerenzweigLaw.com.

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