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.

Major Court Ruling Protects Subcontractors’ Right to Get Paid

The right of subcontractors to get paid on federal projects is more iron-clad thanks to a recent decision out of the Ninth Circuit Court of Appeals, handed down on April 29, 2014. The decision explains that state law cannot frustrate the federal statute providing subcontractors and other companies an avenue to payment for their work.

The federal law that provides companies and persons with such a remedy is the Miller Act. This Act protects persons who contribute to the performance of a federal construction contract, including subcontractors and those who directly contract with subcontractors, such as sub-subcontractors. Recently, a Ninth Circuit case confirmed that state law cannot bar a contractor’s federal Miller Act lawsuit for payment.

The Miller Act makes general contractors on federal construction projects provide a payment bond “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3133(b)(2). Under the Miller Act, any person who has furnished labor or materials for work on a federal construction project, and who has not received full payment within 90 days after their last day of work or furnishing of materials or supplies can bring a civil lawsuit on the project’s payment bond for the amount due at the time the lawsuit is filed. 40 U.S.C. § 3133(b)(1).

The federal Miller Act is remedial in nature, and the Supreme Court has confirmed that its rights and remedies cannot be conditioned by state law. The Ninth Circuit recently affirmed this principle in a case of first impression, joining the Supreme Court and the Eighth and Tenth Circuits.

In Technica, LLC v. Carolina Cas. Ins. Co., No. 12-56539 (April 29, 2014), the prime contractor and surety for the federal payment bond at issue tried to argue that Technica, a sub-subcontractor on the federal government project, could not maintain its Miller Act lawsuit because it lacked a California contractor’s license. A California law precluded any unlicensed contractor from filing a lawsuit to collect for unpaid services, but the Technica Court held that the California law could not limit Technica’s rights under the federal Miller Act.

While many construction laws have strict time limits and procedural requirements, the Technica Court made it clear that state laws attempting to limit a claimant’s rights and remedies under the federal Miller Act will be struck down. The construction lawteam at Berenzweig Leonard has experience navigating the complexities of the federal Miller Act and its intersection with local state laws.

Katie Lipp is an attorney with the Washington, DC regionalbusiness law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.