Below is a summary of the Virginia payment bond changes that are effective this year prepared by my law partner and fellow VB Construction and Public Contracts Law Department member John Lockard. The changes resulted from several compromises in the 2011 General Assembly, and the impacts remain to be seen.
VIRGINIA PAYMENT BOND CHANGES 2012
In 2011, the Virginia legislature increased the minimum contract amounts for which payment bonds are required. As a result of the changes, no payment bonds are required for state or municipal contracts under $500,000 or for transportation related projects (i.e., VODT projects) under $250,000. This means that subcontractors and vendors on projects under those threshold amounts may have no lien or bond rights to secure payment for the labor or materials provided to the projects. This year the legislature increased the minimum threshold on VDOT projects to $350,000.
Additionally, the General Assembly required that any general contractor for certain projects under the threshold amounts must be “pre-qualified.” This requirement likely arose as a means to provide some assurance for payment and to test the ability of general contractors to perform the contract. “Pre-qualification” is required for any non-transportation project between $100,000 and $500,000 and for transportation projects between $250,000 and $350,000 (if no payment or performance bonds were otherwise required). The statute did not specify the requirements for pre-qualification. Despite this requirement, there is no guarantee that a “pre-qualified” general contractor will be able to pay for the labor and materials supplied for these contracts.
Public entities are not prohibited from requiring payment bonds for projects under the threshold amounts, but prudent subcontractors and suppliers should assume that they have no security for labor and materials provided for contracts under $500,000 with state public entities or for VDOT contracts under $350,000. At the beginning of the project, subcontractors and suppliers on these projects should ask if a payment bond was provided. If not, subcontractors and suppliers should carefully monitor their accounts receivables and take prompt action to pursue their claims if the general contractor does not make payments in a timely manner. Generally, the aggressive creditors are more likely to be paid. If you have questions regarding this article or your options to collect amounts due on construction projects, we recommend that you contact an attorney experienced in pursuing construction claims.