As of Jan. 1, 2023, pay-if-paid clauses are unenforceable, regardless of whether a surety/payment bond claim is involved. This is only for subcontracts created on/after 1/1/23.
Also for subcontracts created on/after 1/1/23, the prime must specifically identify and notify the sub of withholding as underlined below.
Per Va Code 11-4.6(C), for any withholding, the prime “shall notify the subcontractor, in writing, of his intention to withhold all or a part of the subcontractor’s payment with the reason for nonpayment, specifically identifying the contractual noncompliance, the dollar amount being withheld, and the lower-tier subcontractor responsible for the contractual noncompliance.”
Per Va Code 2.2-4354(1), (SB 550) Requires construction contracts awarded by state or local government agencies “as well as certain private construction contracts in which there is at least one general contractor and one subcontractor” to include a payment clause that obligates the contractors to be liable for the entire amount owed to any subcontractor with which it contracts. The bill provides that “a contractor shall not be liable for amounts otherwise reducible due to the subcontractor’s noncompliance with the terms of the contract; however, the contractor must notify the subcontractor in writing of the contractor’s intent to withhold all or a part of the subcontractor’s payment with the reason for such nonpayment.”
The legislature has not yet, but is working, to reconcile the specificity required by one code section that the other section more broadly outlines.
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Jonathan J. Straw
Partner | KraftsonCaudle.com
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