Contributed By McGuireWoods LLP
There is no dominant price structure used for private projects in Virginia. Projects tend to be structured as either fixed-price or cost-plus-fee contracts. Cost-plus-fee contracts can include a cost plus a fixed fee, but can include a variety of incentives that will up the contractor’s fee to incentivize quality of work, timeliness of completion and the like, and will introduce a variable post-construction fee.
Responsibility for design and construction often depends largely on the financing available to the owner, the owner’s past experience and relative risk attitude, the timeframe for completion of the project, and the contractor involved in any particular project. Such issues can involve the owner contracting with an architect, who is responsible for design, who can then subcontract with engineers and other design professionals as needed. Separately, the owner would contract with a general contractor independently, who is responsible for construction. Alternatively, owners can employee a construction manager or issue design-build contracts.
Construction contracts in Virginia manage risk in a wide variety of ways, including limitations of liability, waivers of consequential damages, insurance, bonding, pricing, scheduling, indemnification, and the like. Contractors can limit their own risk by incorporating a damages cap within the contract, which can help to limit their exposure. Virginia allows indemnification for one’s own negligence in certain circumstances. See, eg, Estes Express Lines, Inc. v. Chopper Express, Inc., 273 Va. 358, 641 S.E.2d 476, 2007 Va. LEXIS 25.
Construction contracts in Virginia can incorporate a variety of provisions in order to help manage schedule-related risks. This starts, first and foremost, with a cooperative approach to formulating the initial project schedule, including the design professionals and the construction contractors. A contract can include incentives for early completion, penalties for late completion, and incentives for reaching schedule-related milestones along the way. Contracts must be carefully drafted to limit and define what constitutes a force majeure event, and must define and create a procedure for delay claims.
Owners often seek additional forms of security to guarantee both the timely performance of a project and the quality of performance of a project. The type of security will vary largely, based on the financial assets of the contractor and the contractor’s track record for project completion and claims. For larger projects, performance and completion bonds are almost always required. For smaller projects, bonds may be difficult or costly for a contractor to obtain, so contracts will often resist posting them or attempt to pass along the cost of said bonds to the owner. Owners often seek additional security by increasing the amount of retention held. In Virginia, the threshold varies depending upon the type of project.
Contractors and designers are entitled to file a mechanics lien against the property in the event of non-payment for a project. A Virginia mechanics lien relates back to the day work commenced on the project and is therefore given a degree of super-priority over after-imposed liens, though only to the extent a lien is recorded after the work commences.
Prior to a property being inhabited or used for its intended purpose, certificates of occupancy or similar permits are a requirement of most local jurisdictions. The nomenclature varies from jurisdiction to jurisdiction. Certificates of occupancy or similar approvals are evidence that the premises is compliant with the applicable zoning and building code requirements. In most cases, certificates of occupancy are also required any time there is a change in use or tenancy of the premises in question.