Recent Changes to Bond and Claim Notice Requirements on Virginia Public Construction Projects

Credit for this article goes to my law partner, John Lockard, who prepared it as part of his recap of the 2011 General Assembly session. This summarizes two significant changes to Virginia's Little Miller Act.

During the 2011 Session the Virginia General Assembly passed two important changes to bond and claim requirements on Virginia Public Construction Projects. HB 1951, effective 7/1/11, raised the minimum amount required for bid, performance and payment bonds. The new minimum contract amount increased from $100,000 to $500,000 for non-transportation construction projects. If the bond requirement is waived on projects between $100,000 and $500,000 the prospective contractors must be prequalified. This means that subcontractors and vendors on non-transportation construction projects under $500,000 should not assume that a bond is in place and should investigate that issue before agreeing to payment and credit terms. SB 1424, effective 7/1/11, reduced the time within which lower tier subcontractors and vendors must provide notice to the contractor from 180 days to 90 days. Therefore, any claimant that has a contract relationship with a subcontractor or vendor, but no contract relationship with the contractor may only pursue a payment bond claim if it first gives written notice to the contractor within 90 days from the day on which the claimant performed the last of the labor or furnished the last of the materials for which it claims payment.

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Careful of that deal, you may be waiving your payment bond claim

Payment bonds are intended to protect those who have supplied labor or materials for either public projects where mechanic's liens are not available, or for some commercial projects where the owner seeks to encourage bond claims rather than lien claims. They offer generally good protection for those who have supplied labor or material, but not yet been paid. However, because they seek to hold the payment bond surety liable even though they have not contracted with the subcontractor or supplier, they - generally - are strictly construed so as to protect the surety from conditions to which the surety was not a party. One of those principles results in discharge of the surety if the subcontractor or supplier changes the nature of its "deal" with the contractor principal to the bond. This may occur, for example, if the supplier is owed money and enters into a settlement agreement with the contractor rather than seeking recovery under the bond. If the surety is not a party of the settlement, the settlement has the effect of discharging the surety, leaving the supplier only with the remedy of enforcing the settlement against the contractor breaching the settlement agreement, but not against the surety. Thoughts to consider if you're contemplating a compromise of your claim regarding a bonded project.