The General Assembly Adds Some Clarity to Contracts and Unlicensed Contractors

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Photo by Free-Photos

For years, the statute regarding performing construction without a valid license (Va. Code 54.1-1115) was a bit murky.  While that statute listed several prohibited acts, among them contracting without the proper class of license or use of the license of another, the consequences of such activity, in particular the effect that such action would have on the enforcement of a construction contract (Section C of the statute), were less than clear.

During the most recent General Assembly session, a few changes were made to sections B and C of the statute at the behest of the Virginia Bar Association Construction Section Council in hopes of clarifying the consequences for Virginia construction professionals that contract without a license and their customers.  HB 732 changes (effective July 1, 2018) Subsection C of the statute to read:

C. No person shall be entitled to assert the lack of licensure or certification as required by this chapter as a defense to any action at law or suit in equity if the party who seeks to recover from such person A construction contract entered into by a person undertaking work without a valid Virginia contractor’s license shall not be enforceable by the unlicensed contractor undertaking the work unless the unlicensed contractor (i) gives substantial performance within the terms of the contract in good faith and without (ii) did not have actual knowledge that a license or certificate was required by this chapter to perform the work for which he seeks to recover payment. (changes in original House Bill)

As you can see, the language is more direct and should be more easily interpreted by courts and importantly, more easily understood by the construction community in Virginia.  Even with this change, I recommend that you consult an experienced Virginia construction attorney to discuss your rights under the laws affecting construction in Virginia.

Have any thoughts on the above? I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

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The General Assembly Adds Some Clarity to Contracts and Unlicensed Contractors

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

I forgot how much fun it was playing family board games as a child.  We recently dusted off some of the oldies like Sorry, Life and Monopoly to play with the kids.  I laughed uncontrollably the first time I got to say, “Go directly to jail. Do not pass GO. Do not collect $200!”

A contractor in North Dakota wasn’t laughing when it was not allowed to pass “Go” and could not immediately collect its $200,000  for work performed.  In Snider Construction v. Dickinson Elks Building, LLC, the court held a contractor was not entitled to recover for labor and materials during a time period when the contractor was unlicensed.  There, the out-of-state contractor entered into the construction contract on December 26, 2011, but did not get its contractor’s license until February 5, 2012.  The contractor later filed a lien for approximately $200,000.  The trial court awarded the contractor its claim for damages, and the owner appealed.

On appeal, the owner argued that North Dakota Code requires a contractor be licensed at the time of contract formation or commencement of work under the contract to maintain a claim or action related to the work performed under the contract. Because the contractor did not obtain a license until after it had entered into the contract with the owner and started working on the project, the owner claimed that the contractor barred from bringing any claim.

While the contractor was unable to pass “Go” to immediately collect its $200,000, its claims were not totally lost. The appellate court held that although the contractor could not recover for labor and materials during period that it had not received license (i.e., the lien claim), the contractor was entitled to recover in quantum meruit and unjust enrichment for labor and materials provided after it was granted a license.

Depending on your state, you may or may not be able to maintain an action as an unlicensed contractor.  For example, Arizona requires a valid license at entry into contract and when cause of action arose; Utah requires a valid license at time of contracting and “[c]ontinuously while performing the work for which compensation is sought”; and North Dakota bars all claims only during a period of time the contractor was not licensed.  If you work in another state, make sure you pass “GO” (…get licensed…) and collect your $200.

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

I forgot how much fun it was playing family board games as a child.  We recently dusted off some of the oldies like Sorry, Life and Monopoly to play with the kids.  I laughed uncontrollably the first time I got to say, “Go directly to jail. Do not pass GO. Do not collect $200!”

A contractor in North Dakota wasn’t laughing when it was not allowed to pass “Go” and could not immediately collect its $200,000  for work performed.  In Snider Construction v. Dickinson Elks Building, LLC, the court held a contractor was not entitled to recover for labor and materials during a time period when the contractor was unlicensed.  There, the out-of-state contractor entered into the construction contract on December 26, 2011, but did not get its contractor’s license until February 5, 2012.  The contractor later filed a lien for approximately $200,000.  The trial court awarded the contractor its claim for damages, and the owner appealed.

On appeal, the owner argued that North Dakota Code requires a contractor be licensed at the time of contract formation or commencement of work under the contract to maintain a claim or action related to the work performed under the contract. Because the contractor did not obtain a license until after it had entered into the contract with the owner and started working on the project, the owner claimed that the contractor barred from bringing any claim.

While the contractor was unable to pass “Go” to immediately collect its $200,000, its claims were not totally lost. The appellate court held that although the contractor could not recover for labor and materials during period that it had not received license (i.e., the lien claim), the contractor was entitled to recover in quantum meruit and unjust enrichment for labor and materials provided after it was granted a license.

Depending on your state, you may or may not be able to maintain an action as an unlicensed contractor.  For example, Arizona requires a valid license at entry into contract and when cause of action arose; Utah requires a valid license at time of contracting and “[c]ontinuously while performing the work for which compensation is sought”; and North Dakota bars all claims only during a period of time the contractor was not licensed.  If you work in another state, make sure you pass “GO” (…get licensed…) and collect your $200.

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

The General Assembly Seems Ready to Provide Some Consistency in Mechanic’s Lien Waiver

courthouse photo
Photo by jpornelasadv

Back in 2015, the Virginia General Assembly amended the mechanic’s lien statute (Va. Code 43-3) here in Virginia to preclude any contractual provision that diminishes a subcontractor or supplier’s “lien rights in a contract in advance of furnishing any labor, services, or materials.”  However, this amendment was only applicable to subcontractors and suppliers.  For political and other reasons, general contractors in Virginia were left out of this change.  This omission by the legislature put Virginia general contractors in the position of potentially being forced by project owners to waive their mechanic’s lien rights without the ability to run that risk down stream to their subcontractors and suppliers.

A recent bill enrolled during this legislative session, HB823, provides some remedy to this inconsistency.  This bill (a .pdf of which can be obtained here) amends Virginia Code 43-3 and Virginia Code 43-21 to effectively preclude full contractual waiver of lien rights by general contractors with one caveat.  That caveat is that with the amendment to 43-21 relating to priority of liens the general assembly has specifically authorized pre or post provision of labor or materials subordination of general contractor mechanic’s liens to any deed of trust on the property in question.  In short, general contractors got at least partial relief from the contractual bind that the previous legislation put them in.

Of course this begs the question of whether subcontractors and suppliers can be forced to subordinate their lien rights given the above-quoted language.  Would doing so constitute diminishing those rights through the loss of priority?  In the past few years, I haven’t seen a case that answers this question.  As always, I recommend that you review the statutes yourself, preferably with the advice of an experienced Virginia construction attorney.

Have any thoughts on the above? I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

The General Assembly Seems Ready to Provide Some Consistency in Mechanic’s Lien Waiver

In Construction, There’s A Tattletale And There’s What is Right

Sometimes, we avoid doing bad things because of the risk of getting caught.  Other times, we avoid doing bad things because we simply choose to do right things.  Whatever the camp you fall into, a recent government contracts case tells a story that should be avoided when submitting payment applications to the government.

In U.S. ex rel. Jesse Sloan v. Waukegan Steel, LLC, an employee brought a False Claims Act (FCA) against his employer for false billing and certification on a goverment project.  The Attorney General has primary authority for enforcing FCA, but the law includes what is called a qui tam provision, which permits a private party to bring a civil action alleging fraud against the Government on its own behalf as well as on behalf of the United States. 31 U.S.C. § 3730(b).  If the private party prevails, he receives a percentage of the recovery. 31 U.S.C. § 3730(d).

Waukegan was responsible for fabricating and installing the structural steel of project. The design specifications require that the contractors adhere to various professional codes, including those of the American Institute of Steel Construction (AISC), the American Society for Testing and Materials (ASTM), and the American Welding Society (AWS).  The subcontractor was required to submit “fabrication quality control and weld inspection certificates” to the government before payment was issued. According to the employee, Waukegan did not have any of these certificates.

In Sloan, the president of the company allegedly asked the employee to fabricate the inspection certificates. When he refused, the president allegedly approached another employee who was not a qualified welding inspector.  That employee fabricated the requested welding inspection certificates.

While the court’s decision focused on the type of allegations necessary to prove fraud on the FCA, the opinion is instructive to avoid FCA claims.  To prove an FCA claim, a plaintiff must prove that (1) the defendant made a statement in order to receive money from the government, (2) the statement was false, (3) the defendant knew it was false, and (4) the statement was material to the decision to pay or approve the false claim.

Notably, the Court in Sloan rejected every defense raised by Waukegan and allowed the case to go forward. For example, the subcontractor argued that the funds were paid to the subcontractor by the prime contractor—as opposed to the Federal government—and thus there was no attempt to defraud the government.  The Court disagreed: “Importantly, Congress subsequently amended the False Claims Act to clarify that the defendant need not intend for the government itself to pay the subcontractor’s claim; it would be contrary to Congress’s original intent in passing the law if even when a subcontractor in a large Government contract knowingly submits a false claim to general contractor and gets paid with Government funds, there can be no liability unless the subcontractor intended to defraud the Federal Government, not just their general contractor.”

In the end, you can choose to follow the law because you are fearful that one of your employees may become a tattletale, like the decision in Sloan, or because it is the right thing to do.  Whichever the case, false and misleading statements submitted to the government will most likely be discovered and create problems for you.

In Construction, There’s A Tattletale And There’s What is Right

In Construction, There’s A Tattletale And There’s What is Right

Sometimes, we avoid doing bad things because of the risk of getting caught.  Other times, we avoid doing bad things because we simply choose to do right things.  Whatever the camp you fall into, a recent government contracts case tells a story that should be avoided when submitting payment applications to the government.

In U.S. ex rel. Jesse Sloan v. Waukegan Steel, LLC, an employee brought a False Claims Act (FCA) against his employer for false billing and certification on a goverment project.  The Attorney General has primary authority for enforcing FCA, but the law includes what is called a qui tam provision, which permits a private party to bring a civil action alleging fraud against the Government on its own behalf as well as on behalf of the United States. 31 U.S.C. § 3730(b).  If the private party prevails, he receives a percentage of the recovery. 31 U.S.C. § 3730(d).

Waukegan was responsible for fabricating and installing the structural steel of project. The design specifications require that the contractors adhere to various professional codes, including those of the American Institute of Steel Construction (AISC), the American Society for Testing and Materials (ASTM), and the American Welding Society (AWS).  The subcontractor was required to submit “fabrication quality control and weld inspection certificates” to the government before payment was issued. According to the employee, Waukegan did not have any of these certificates.

In Sloan, the president of the company allegedly asked the employee to fabricate the inspection certificates. When he refused, the president allegedly approached another employee who was not a qualified welding inspector.  That employee fabricated the requested welding inspection certificates.

While the court’s decision focused on the type of allegations necessary to prove fraud on the FCA, the opinion is instructive to avoid FCA claims.  To prove an FCA claim, a plaintiff must prove that (1) the defendant made a statement in order to receive money from the government, (2) the statement was false, (3) the defendant knew it was false, and (4) the statement was material to the decision to pay or approve the false claim.

Notably, the Court in Sloan rejected every defense raised by Waukegan and allowed the case to go forward. For example, the subcontractor argued that the funds were paid to the subcontractor by the prime contractor—as opposed to the Federal government—and thus there was no attempt to defraud the government.  The Court disagreed: “Importantly, Congress subsequently amended the False Claims Act to clarify that the defendant need not intend for the government itself to pay the subcontractor’s claim; it would be contrary to Congress’s original intent in passing the law if even when a subcontractor in a large Government contract knowingly submits a false claim to general contractor and gets paid with Government funds, there can be no liability unless the subcontractor intended to defraud the Federal Government, not just their general contractor.”

In the end, you can choose to follow the law because you are fearful that one of your employees may become a tattletale, like the decision in Sloan, or because it is the right thing to do.  Whichever the case, false and misleading statements submitted to the government will most likely be discovered and create problems for you.

In Construction, There’s A Tattletale And There’s What is Right

The General Assembly Seems Ready to Provide Some Consistency in Mechanic’s Lien Waiver

courthouse photo
Photo by jpornelasadv

Back in 2015, the Virginia General Assembly amended the mechanic’s lien statute (Va. Code 43-3) here in Virginia to preclude any contractual provision that diminishes a subcontractor or supplier’s “lien rights in a contract in advance of furnishing any labor, services, or materials.”  However, this amendment was only applicable to subcontractors and suppliers.  For political and other reasons, general contractors in Virginia were left out of this change.  This omission by the legislature put Virginia general contractors in the position of potentially being forced by project owners to waive their mechanic’s lien rights without the ability to run that risk down stream to their subcontractors and suppliers.

A recent bill enrolled during this legislative session, HB823, provides some remedy to this inconsistency.  This bill (a .pdf of which can be obtained here) amends Virginia Code 43-3 and Virginia Code 43-21 to effectively preclude full contractual waiver of lien rights by general contractors with one caveat.  That caveat is that with the amendment to 43-21 relating to priority of liens the general assembly has specifically authorized pre or post provision of labor or materials subordination of general contractor mechanic’s liens to any deed of trust on the property in question.  In short, general contractors got at least partial relief from the contractual bind that the previous legislation put them in.

Of course this begs the question of whether subcontractors and suppliers can be forced to subordinate their lien rights given the above-quoted language.  Would doing so constitute diminishing those rights through the loss of priority?  In the past few years, I haven’t seen a case that answers this question.  As always, I recommend that you review the statutes yourself, preferably with the advice of an experienced Virginia construction attorney.

Have any thoughts on the above? I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

© Construction Law Musings- Richmond, VA is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 license.

The General Assembly Seems Ready to Provide Some Consistency in Mechanic’s Lien Waiver