26.2 Statutory and Regulatory Framework
Library | Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.) |
26.2 STATUTORY AND REGULATORY FRAMEWORK
The Commonwealth of Virginia and its political subdivisions have laws and regulations governing persons and entities that conduct business within their jurisdictions. 1 There are also laws and regulations that apply particularly to subcontractors and suppliers in construction-related contracting and work in Virginia. Some of the more common statutory and regulatory issues for subcontractors and suppliers are addressed below. 2
26.201 Licensing.
A. The Virginia Licensing Statute. With limited exceptions, Virginia requires that "contractors" be licensed to engage in construction work in the Commonwealth. 3 The Virginia Code defines a "contractor" as:
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any person, that for a fixed price, commission, fee, or percentage undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing, or superintending in whole or in part, the construction, removal, repair or improvement of any building or structure permanently annexed to real property owned, controlled, or leased by him or another person or any other improvements to such real property. 4
By law, contractors performing such work in Virginia must be licensed:
No person shall engage in, or offer to engage in, contracting work in the Commonwealth unless he has been licensed under the provisions of this chapter. . . . Prior to a joint venture engaging in, or offering to engage in, contracting work in the Commonwealth, (i) each contracting party of the joint venture shall be licensed under the provisions of this chapter or (ii) a license shall be obtained in the name of the joint venture under the provisions of this chapter. 5
Because of the breadth of the statutory language, the license requirement applies not only to "contractors" but also to subcontractors, sub-subcontractors, and their subcontractors. Subcontractors and lower-tier sub-subcontractors cannot rely on the general contractor's license for compliance with the license requirements to perform work on a particular project. Virginia law also permits localities to require a license of a person who engages in the business of home improvement or constructing single or multi-family dwellings. 6
Exemptions to the Commonwealth's statutory licensing requirements include the following, in addition to other exemptions:
• | Work bid upon or undertaken for the armed services of the United States under the Armed Services Procurement Act; |
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• | Work bid upon or undertaken for the United States government on land under the exclusive jurisdiction of the federal government either by statute or deed of cession; | |
• | Work bid upon or undertaken for the Department of Transportation on the construction, reconstruction, repair or improvement of any highway or bridge; and | |
• | Any material supplier who renders advice concerning use of products sold and who does not provide construction or installation services. 7 |
There are presently no published Virginia court decisions that address the breadth of the licensing exemption for "any material supplier who renders advice concerning use of products sold and who does not provide construction or installation services." 8
B. Penalty for Violation of License Requirement. Contracting for construction in Virginia without a license when one is required can be costly. First, "[c]ontracting for, or bidding upon the construction, removal, repair or improvements to or upon real property owned, controlled or leased by another without a license or certificates, or without the proper class of license," constitutes a Class 1 misdemeanor. 9 In addition, failure to possess the appropriate license will bar recovery for work performed, if the statutory good faith exception does not apply. 10 While recognizing the
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severity of the penalty for failure to be properly licensed, the Virginia Supreme Court has stated that the licensing statute is designed to:
protect the public from inexperienced, unscrupulous, irresponsible, and incompetent contractors, [and] is a valid exercise of the police power of the State, and a contract made in violation of its provisions is void and there can be no recovery thereon. Enforcement of the contract is denied the unregistered contractor, not because of the nature of the transaction, but as a penalty for failing to comply with the registration statutes. 11
The severity of the penalty has been lessened by the good faith exception that was added to the licensing statute, which is discussed below.
C. Good Faith Exception. The statute provides a good faith exception that allows unlicensed, non-exempt contractors to recover fees where they gave "substantial performance within the terms of the contract in good faith and . . . did not have actual knowledge that a license or certificate was required." 12 Thus, an unlicensed contractor who fits within the statutory good faith exception can recover for its work. 13
The good faith exception is not without limits. In a 2008 decision, Daniel Jones Remodeling, L.L.C. v. Johnny Cheng-Teh Chiu, 14 the contractor held a Class B license. The contractor sued for breach of contract and quantum meruit for unpaid extras that, together with the contract price, exceeded the Class B license limit. The circuit court ruled that the contractor could not sue for construction work that it was underlicensed to perform, regardless of whether the contractor innocently or otherwise exceeded the monetary limits of its license.
D. Contractor's License Required to File Mechanic's Lien. The Virginia Mechanic's Lien statutory provisions now require a mechanic's lien claimant who performs labor to have a valid contractor's license or certificate issued by the Board of Contractors with the proper class of license
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for the value of the work to be performed, when such a license or certificate is required by law for the labor performed. 15 Now, by law, a failure to be properly licensed precludes a contractor or subcontractor from filing a mechanic's lien. 16 The form in the Virginia Code of a Memorandum For Mechanic's Lien Claimed By Subcontractor includes a line to be completed with the claimant subcontractor's/supplier's Virginia Contractor License or Certificate number. An inaccuracy in the Memorandum as to the claimant's license or certificate number, the date of issuance or date of expiration shall not bar perfection of the lien if the claimant can otherwise be identified in the records of the Board of Contractors. 17
26.202 Listing of Subcontractors and Suppliers. "Listing" is the practice of identifying subcontractors or suppliers in a prime contractor's bid or proposal documents that the prime contractor intends to or will use if awarded the prime contract. In some states, such as California, 18 listing is a statutory requirement in bidding for public contracts, and substitutions for listed subcontractors are allowed only in limited circumstances. The intent of listing is to prevent prime contractors from post-award bid shopping among subcontractors or suppliers.
The Virginia Public Procurement Act (VPPA) does not require contractors bidding on public works contracts to list subcontractors or suppliers. Private project owners may elect to include listing requirements in their bid documents.
26.203 Retainage.
A. Public Works. For public works contracts, the VPPA limits retainage to five percent withholding from progress payments based on the estimated percentage of completion. 19 Subcontracts for public works projects that provide for similar progress payments are also subject to the statutory limitation of five percent for retainage. 20 The construction law practitioner should be aware that a general contractor will sometimes use its "standard"
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form subcontract on a public works project with specified retainage that exceeds the statutory limitation. If the general contractor has withheld retainage in excess of the statutory limitation, there may be grounds to argue violation of Virginia's Prompt Payment statute 21 or breach for failure to pay sums due.
In South End Const. Inc. v. Tom Brunton Masonry, Inc., 22 the project was for the construction of an addition to county offices of Wythe County, Virginia, and consequently the project and the contract/subcontracts were subject to the Virginia Public Procurement Act (VPPA). The general contractor, South End, had withheld ten-percent retainage from its progress payments to its masonry subcontractor, Tom Brunton Masonry. The subcontractor contended the ten percent retainage violated the VPPA's five percent limitation on retainage. 23 The court ruled that a violation of the VPPA's five percent limit on retainage did not create a private right of action, finding that there was no clear and specific evidence of legislative intent to create a cause of action under section 2.2-4333, nor had a Virginia state court implied a private right of action to remedy a retainage limit violation on a project subject to the VPPA. 24 The court also ruled, however, that the subcontractor could amend its complaint to add a count for breach of contract against the general contractor for nonpayment of the excess retainage. In so ruling, the court concluded the statutory five percent limit on retainage was incorporated by operation of law into every subcontract subject to the VPPA, so the limitation could not be altered or waived by contract and any provision in a subcontract inconsistent with the five percent retainage limitation was void. 25
B. Private Works. Contracts and subcontracts for private works projects in Virginia are not subject to the statutory limits on retainage. The parties may agree to a lesser or greater amount of retainage than the statutory five percent limit for public works projects under the VPPA. However, while Virginia's mechanics' lien statute allows the inclusion of retainage in the claimed lien amount, the claimed retainage amount in the...
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