Updates to the Virginia Prompt Payment Act
By Michael W.S. Lockaby
The Virginia General Assembly made significant amendments to general rules for construction contracts, as well as the specific rules for public entity construction contracts in the Prompt Payment Act, that largely remove the option of “pay when paid” contracts between general contractors and subcontractors. Beginning in 2022, Virginia Code section 11-4.6 requires every private construction contract to include a provision requiring the owner to pay the general contractor within 60 days of receiving an invoice, or give the general contractor notice why the owner is withholding payment for work it believes was either defective or just not done within 45 days. It also requires a contractor to pay a subcontractor upon the earlier of 60 days after completion or seven days after receiving payment from the owner (or higher-tier contractor), or give notice of intent to withhold payment for cause. The 2023 General Assembly clarified these provisions in 2023. Primarily, with respect to private construction contracts, it locked up the language of the statute tightly such that all private construction contractors should be careful to make sure that these clauses are present. It results in a reallocation of risk upward toward general contractors and higher-tier subcontractors. Subcontractors can still face uncertainty if the owner or a higher-tier contractor declares bankruptcy or there are unresolved change orders and claims, but it is now much safer for subcontractors to assume that when they do work, they will get paid. Notably, these provisions specifically exclude public contracts.
With regard to public entities, the amendments to the Prompt Payment Act, Virginia Code secs. 2.2-4347 to 2.2-4356, are mostly, but not entirely, consistent with the changes to the general private construction contract language. While the language is largely similar, it differs in some of the specifics. Since governments commonly let many construction contracts, this is of particular importance to public entities. Public entities tend to use variations on the American Institute of Architects (“AIA”), Engineers Joint Contract Drafting Committee (“EJCDC”), or Department of General Services (“DGS”) standard terms and conditions for construction contracts. When drafting supplemental terms and conditions for AIA and EJCDC documents, it is important for local government and agency attorneys to update older sets of supplemental terms and conditions to make them consistent with the new Prompt Payment Act provisions. However, there is now a different definition for a “construction contract” for the purposes of the Prompt Payment Act and the general provisions for contract formation elsewhere in the Public Procurement Act. While the differences appear small, these are, again, issues that will need to be resolved, particularly when dealing with job order contracts (“JOC”) where elements of both architecture/engineering and construction are present.
From the standpoint of owners, these provisions are good. Every public entity has a story about a general contractor that did not pay their subcontractor, the subcontractor pulled off the job and made a claim on the payment bond, and entire project went sideways. The new Prompt Payment Act and general contract provisions give the owner some leverage to get the subcontractors paid, back on the job, and essential infrastructure and government facilities to be completed on time.
Supreme Court Clears Path for Mountain Valley Pipeline Construction to Resume
“The order was handed down while the 4th U.S. Circuit Court of Appeals was in the midst of a hearing on the matter.”
Why this is important: With only an estimated 20 linear miles of pipe remaining to be placed, the U.S. Supreme Court has now officially cleared the way for final completion of the Mountain Valley Pipeline after it vacated a stay of construction issued by the Fourth Circuit Court of Appeals.
Earlier today, the Supreme Court issued a short order in response to the pipeline’s developer’s claims that the Fourth Circuit lacked jurisdiction to issue the stay. The Fourth Circuit entered its stay earlier this month based upon challenges to environmental permits that Congress approved in order to expedite completion of the pipeline. Congressional approval of those permits was a part of the Fiscal Responsibility Act of 2023, the bipartisan bill to raise the debt ceiling signed by President Biden in early June. Specifically, that bill included a particular section in which Congress declared that the “timely completion of construction and operation of the Mountain Valley Pipeline is required in the national interest.” Accordingly, it expressly ratified and approved all authorizations, permits, and other approvals that were previously issued for completion of the project. The bill also expressly conferred jurisdiction over any dispute regarding the validity of that section with the D.C. Circuit Court of Appeals, effectively stripping the Fourth Circuit of its jurisdiction.
In seeking emergency relief from the Fourth Circuit’s stay, the pipeline’s developer essentially asked the Supreme Court to consider if Congress could forbid the judicial branch from reviewing whether the project was in line with federal environmental laws. Although the Court issued its order without further discussion, environmental groups had argued that Congress overstepped its authority in the debt ceiling bill, claiming it to be a violation of separation of powers. The pipeline’s developers however claimed that Congress could not have been any clearer in its intent to bring the pipeline to completion. West Virginia Governor Jim Justice, among others, filed amicus briefs in support of the pipeline’s developers claims. West Virginia Senators Shelley Capito and Joe Machin, both of whom were at the center of efforts to include the pipeline’s approval language in the debt ceiling bill, were also confident in Congress’s authority under the debt ceiling bill. --- Jonathan A. Deasy
How the Home Building Industry Got a Bill to Delay New Energy Efficiency Standards in NC
“With the council poised to adopt the changes, the Republican-controlled legislature stepped in to pass a bill that would block any new standards.”
Why this is important: The hotly contested changes to the North Carolina Building Code are back on hold thanks to a legislative runaround by lobbyists opposing the code changes that resulted in House Bill 488. This year, the Building Code Council planned to update the energy efficiency standards for new construction homes, but it met opposition from the Home Builders Association. The Home Builders argue that the proposed changes would significantly increase the cost to consumers of building a new home, while advocates for the proposed changes argue that making new homes more energy efficient is better for consumers in the long-term and “pays for itself” through lower energy consumption and utility bills. This most recent development puts a new hold on changes to the code, but do not expect the debate to end. Governor Cooper vetoed the bill, and a potential override vote could take place in August. Following House Bill 488 is also worthwhile due to the changes it would make to the structure of the Building Code Council. --- Steven C. Hemric
Labor Board Decision will Make It Harder to Classify Independent Contractors
“The case of the Atlanta Opera swings the independent contractor pendulum back to the Obama-era standard as the board ruled 3-1 to overturn the Trump-era board’s decision during the SuperShuttle case, which emphasized a worker’s ‘entrepreneurial opportunity’ over other factors when classifying them as employees or contractors.”
Why this is important: A June National Labor Relations Board (“NLRB”) decision has once again made it harder for employers to classify workers as independent contractors, overturning a 2019 decision under the Trump administration and returning to a standard set during the Obama administration in 2014. That means more workers who were classified as independent contractors and excluded from union representation may now seek opportunities to organize.
The recent decision involves hairstylists working at a Georgia opera company who are hired to work on a production-by-production basis. The hairstylists agree to an hourly rate and submit time sheets; however, they do not have contracts, are not on the company’s payroll, and do not sign W-9 forms. After one hairstylist sought union representation, the company argued they were not entitled to representation because the hairstylists are independent contractors, not employees.
The 2019 decision weighed a worker’s “entrepreneurial opportunity” – their ability to financially gain or lose as a result of the work – against common law factors, like control over details of the work and degree of supervision, in determining whether they should be classified as an independent contractor or employee. The 2014 standard, as it is applied here, narrowed the scope of “entrepreneurial opportunity” and focused on whether a worker is able to work for other employers and if they have control over business decisions. The NLRB concluded that the hairstylists were employees because the company controlled their schedules and break times, hourly rates and overtime opportunities, and gave feedback on details like creative decisions. --- Jamie L. Martines
Infrastructure Backlogs Grows in June: ABC
“Highest level in two years.”
Why this is important: A recent member survey conducted by the Associated Builders and Contractors showed that construction backlog remained unchanged from June 2022. According to ABC’s Construction Backlog Indicator, which measures backlog in the commercial, heavy industrial, and infrastructure industries, the total backlog sat at 8.9 months in June 2023. This comes at the heels of a 3.3 month backlog increase in the infrastructure category from June 2022 to June 2023. The 11.2 month backlog in this category now sits at the highest level in nearly two years. Backlogs in the commercial and heavy industrial categories saw modest decreases of 0.4 months and 1.3 months, respectively. On a regional basis, the southern United States maintained the highest backlog. Considering this backlog in light of ABC’s Construction Confidence Index, which measures sales, profit margins, and staffing levels, contractors can expect greater economic growth for second half of 2023. --- Jonathan A. Deasy
Canadian Wildfires Raised Air Pollution. Lumber Prices could be Next.
“Historic fires are blazing through the provinces of Alberta and Quebec, dealing a blow to softwood lumber production.”
Why this is important: Materials prices may be on the rise, again. Both contractors and project owners alike have been looking for relief from the material price increases still lingering from the COVID-19 pandemic, but the Canadian wildfires that have been in the spotlight for smoke blanketing parts of the U.S. may also cause lumber prices to increase. The wildfires have impacted mill schedules and tree harvest plans, and the resulting supply impacts could be large enough to drive up prices from other sources. Contractors and owners alike should be on the lookout for price impacts in the near future, and everyone in the industry should be prepared to address mid-project price changes through price escalation clauses in their contracts. Impacts like these also highlight the often-overlooked interplay between construction and high-profile social issues like the hotly debated conversation surrounding climate change and proper forest management. --- Steven C. Hemric
