Updates to Prompt Payment
As of July 1, 2023, the Virginia General Assembly has made updates to the Prompt Payment Act that went into effect January 1, 2023. The Act as passed, which prohibited pay-when-paid provisions, had many ambiguities that necessitated the update. The updates include new definitions and changes and clarifications to the timing of the payments.
A new definition of “Construction contract” expands the scope from being only between general contractor and subcontractor to include subcontracts, sub-subcontracts and so on. This new definition now includes downstream contractors and subcontractors at any tier and not just the parties contracting directly with the owner.
The 60-day period to pay the funds to the workers is clarified so that the period starts to run from the receipt of an invoice or a pay application and not from the performance of the work. The owner has 45 days from receipt of an invoice or pay application to send written notice of intent to withhold funds due to contractual noncompliance, while a contractor has 50 days from receipt of an invoice or pay application to send written notice of intent to withhold funds for noncompliance.
Subcontractors must follow the same prompt payment requirements as do general contractors with respect to their subcontractors and suppliers with two exceptions. One, persons solely furnishing materials do not have to pay their suppliers within 60 days or comply with the obligations of the prompt payment law. Two, contracts between subcontractors and lower tier subcontractors for single family residential projects or subcontracts where the value of the work is $500,000 or less are expressly excluded.
It is important to understand these updates and comply with the changes so that there is not a violation of the Prompt Payment Act.