During its 2022 session, the Virginia General Assembly passed—and the Governor signed—Senate Bill 550, changing the law governing Virginia construction contracts. Specifically, SB550 amends §§ 2.2-4354 and 11-4.6 of the Virginia Code to eliminate or prohibit “pay if paid” clauses while requiring “prompt payment” clauses in public and private construction contracts.
A contractor cannot require payment by the owner as a condition to paying lower-tier subcontractors. In private construction projects, the general contractor is permitted to have a “pay if paid” clause in the event the owner is “insolvent or a debtor in bankruptcy.” Notably, owners and contractors are still entitled to withhold payment for nonconforming work. If payment is withheld, then SB550 requires a contractor withholding all or part of payment to a lower-tier subcontractor to notify the subcontractor in writing. The written notice must state the intention to withhold all or part of the payment, and state a reason for the nonpayment. The interest penalties associated with the non-payment, contained in the prior text of § 2.2-4354, remain unchanged.
SB550 also establishes a fixed deadline for payment of invoices for private projects. An owner has sixty (60) days upon receipt of an invoice to pay a general contractor following satisfactory completion of the work detailed on the invoice. Additionally, contractors and subcontractors on private projects must pay lower-tier subcontractors by the earlier of (i) sixty (60) days after receiving an invoice or (ii) seven (7) days after receiving payment from the owner or higher-tier contractor for the subcontractor’s work.
This bill takes effect on January 1, 2023, and applies to construction contracts executed on or after that date. Before taking effect, SB550 goes to a Public Body Procurement Workgroup for review. The Workgroup’s findings, along with any legislative recommendations, must be reported to the General Assembly by December 1, 2022.