Virginia Enacts New Law Prohibiting “Pay-if-Paid” Clauses

April 4, 2023

Beginning January 1, 2023, “Pay-if-Paid” clauses will no longer be enforceable in public and private construction contracts in Virginia. “Pay-if-paid” provisions in construction contracts have long been enforceable under Virginia law. These conditional payment provisions are intended to protect general contractors from the risk of nonpayment by the owner by making the duty to make payment to subcontractors or downstream parties expressly conditioned on receipt of payment from the owner. Enacted on April 27, 2022, Senate Bill 550 is a bill that prohibits contractors on both private and public construction projects in Virginia from including provision in subcontracts that condition payment on the receipt of funds from the owner or high-tier contractor. SB 550 does not, however, prohibit a general contractor from issuing a back charge to a subcontractor for noncompliance with the terms of the subcontract as long as it notifies the subcontractor in writing of the intent to withhold and the reason for withholding payment. This new law is scheduled to take effect January 1, 2023.