7.18 Vppa Construction Contract Documents

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

7.18 VPPA CONSTRUCTION CONTRACT DOCUMENTS

7.1801 In General. The Virginia Public Procurement Act addresses the permitted forms of construction contracts and contract terms and conditions only to a limited extent. The VPPA does not, for the most part, dictate the precise terms and conditions that must be included in construction contracts. The mandatory terms and conditions include prompt payment, surety bonds, use of the "E-Verify program," registration to transact business in Virginia, and maintenance of a drug-free workplace. ³³⁴ Even if not in a contract, the pertinent provisions of the VPPA are deemed to be ""incorporated . . . by operation of law" into public procurement contracts." ³³⁵ Other than the statutorily mandated terms and conditions, public contracts are generally left to the state and local governments to draft.

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Typical state construction contract documents consist of a bid form that must be filled out and submitted by the contractor, ³³⁶ a short-form "Contract Between Owner and Contractor," ³³⁷ the "General Conditions of the Construction Contract," ³³⁸ the project plans and specifications, a "Workers' Compensation Certificate of Coverage," ³³⁹ a "Standard Performance Bond," ³⁴⁰ a "Standard Labor and Material Payment Bond," ³⁴¹ a "Schedule of Values and Certificate for Payment," ³⁴² an "Affidavit of Payments of Claims," ³⁴³ a "Certificate of Partial or Substantial Completion by Contractor," ³⁴⁴ and a "Certificate of Completion by Contractor." ³⁴⁵ The appropriate form contract documents are used when the project is design-build ³⁴⁶ or construction manager. ³⁴⁷

Public bodies that are not required to use the Commonwealth's contract documents must prepare their own. In many instances, this becomes the job of the project architect or engineer. Accordingly, it is common for local government construction projects to use standard form construction documents published by authorities such as the American Institute of Architects or the Engineers Joint Contract Documents Committee. ³⁴⁸

If the public works project is being funded by federal grants, it is not unusual to encounter some federally required contract documents or terms

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and conditions. Typically, acceptance of such funding requires compliance with certain federal law or regulations, such as Davis-Bacon ³⁴⁹ wage rates. In such circumstances, and provided that the appropriate approvals are given, the public body may comply with the federal laws or regulations notwithstanding the provisions of the VPPA. ³⁵⁰

For the most part, reported decisions involve the statutes and terms and conditions governing state construction projects. Some of the important statutes and terms and conditions for state public works projects are addressed in the paragraphs that follow.

7.1802 Prompt Payment. Under the prompt payment provisions of the VPPA, ³⁵¹ state agencies must pay contractors either on the date payment is due in accordance with the contract or, if the date is not specified in the contract, within 30 days after the state agency or its agent receives a proper invoice. ³⁵² If a defect or impropriety in the invoice or in the goods or services received will prevent payment by the payment date, the state agency must notify the contractor of the defect or impropriety within 15 days after receiving the invoice or the goods or services. ³⁵³ If payment is made by mail, the date of payment is the date of the postmark. ³⁵⁴

Under the prompt payment statutes, public bodies must include in their contracts the following contract clauses:

1. A requirement that, within seven days after receipt of amounts the state agency pays to the contractor for work performed by the subcontractor, the contractor must either (a) pay the subcontractor for the proportionate share of the total payment received from the agency attributable to the work performed by the subcontractor under that contract; or (b) notify the agency and subcontractor, in writing, of its intention to

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	withhold all or a part of the subcontractor's payment with the reason for nonpayment;
2.	A requirement for individual contractors to provide their social security numbers or for business entities to provide their federal employer identification numbers;
3.	An interest clause that obligates the contractor to pay interest to the subcontractor on all amounts owed by the contractor that remain unpaid after seven days following receipt by the contractor of payment from the state agency or agency of local government for work performed by the subcontractor under that contract, except for amounts withheld as allowed in subdivision 1;
4.	An interest rate clause stating, "Unless otherwise provided under the terms of this contract, interest shall accrue at the rate of one percent per month"; and
5.	A requirement that the contractor include in each of its subcontracts a provision requiring each subcontractor to include, or otherwise be subject to, the same payment and interest requirements with respect to each lowertier subcontractor. 355

There are further provisions regarding the contractor's obligation to pay interest to its subcontractors under the statute. For instance, an interest charge that the contractor owes to the subcontractor pursuant to a payment clause cannot be construed to be an obligation of the state or local government agency. The statute also provides that a contract cannot be modified for the purpose of providing reimbursement for an interest charge, and that cost reimbursement claims cannot include any amount for reimbursement for an interest charge. ³⁵⁶

If a payment or portion of a payment due from a state agency is undisputed and remains unpaid for seven days after the payment date, interest accrues on all such amounts at the interest rate set by the contract or, if there is no contractual interest rate, at the base rate on corporate loans

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(prime rate) as reported daily in the Wall Street Journal. Whenever a split prime rate is published, the lower of the two rates is used. However, the rate of interest charged cannot exceed the rate of interest established pursuant to section 58.1-1812 of the Virginia Code. ³⁵⁷

Interest does not accrue on payments or portions of payments about which there are disagreements regarding the quantity, quality, or time of delivery of the goods and services or the accuracy of the invoice for them. ³⁵⁸ Also, interest does not accrue on retainage prior to the date that final payment is due. ³⁵⁹

7.1803 Modifications. Public bodies may include modification clauses in their contracts permitting changes in the work, but where a change order or the cumulative total of the change orders increase a fixedprice contract by more than 25 percent or $50,000, whichever is greater, the public body must have the prior written approval of the Governor or the Governor's designee in the case of state agencies, or the governing body in the case of political subdivisions. ³⁶⁰ Absent adequate consideration, the amount of a contract may not be increased for any purpose, including, but not limited to, relieving a bidder/offeror from a mistake in its bid or proposal. ³⁶¹

The Commonwealth's standard "General Conditions of the Construction Contract" ³⁶² contains a lengthy provision on changes that provides, among other things, the following:

The Owner may at any time, by written order utilizing the Commonwealth of Virginia Change Order Form CO-11 and without notice to the sureties, make changes in the Work

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which are within the general scope of the Contract, except that no change will be made which will increase the total Contract Price to an amount more than twenty percent (20%) in excess of the original Contract Price without notice to sureties. ³⁶³

A state agency's contracting officer or project manager has strict limitations on the authority to make changes increasing the cost of the work. The contractor may also have limitations on the authority of its representatives to make changes. Accordingly, each party should ascertain the identity and scope of authority of the other party's authorized representatives. Therefore, at the preconstruction meeting, the contractor and the agency must advise each other in writing of their designees authorized to accept or approve changes to the contract price and of any limits to each designee's authority. The parties must also notify each other of any changes of designees or limits of authority during the time the contract is in effect. ³⁶⁴ On non-state public works projects, the owner and contractor should establish at the beginning the identity of authorized representatives and the scope of their authority.

On state contracts, the charge or credit for the change must be determined by one of three methods stipulated in the changes provision of the contract as selected by the agency: (i) agreed price; (ii) unit prices; or (iii) cost reimbursement or force account basis. ³⁶⁵ The allowable charges, credits, percentages for profit and overhead, and excluded costs are all specified in some detail in the Commonwealth's changes provisions. ³⁶⁶

Also on state contracts, all change orders, with the exception of force account change orders (cost plus profit and overhead), must state whether the time for completion is not changed or is either increased or decreased by a specific number of days. ³⁶⁷ The contractor must justify any request for an extension of time by demonstrating an anticipated actual increase in the time required to complete the project beyond that allowed by the contract as adjusted by any prior change orders or amendments to the contract, not just an increase or decrease in the time needed to complete some portion of the

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total work. ³⁶⁸ On projects requiring CPM schedules, ³⁶⁹ a time extension will not be allowed unless the change increases the "critical path" of the project beyond the contract completion date.

Additionally, every...