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Legal Column

News Flash: Virginia Code Limits Right to Withhold Fees from Design Professionals
By Nathan B. Greyard, Lee/Shoemaker PLLC

The Virginia General Assembly revised the mechanic’s lien statute § 43-13, effective July 1, 2020, to make void contract provisions that provide for cross-project withholding of fees. While cross-project withholding provisions may be more prevalent in general contractor-subcontractor contracts, this modification to the statute inures to the benefit of design professionals.

Many design professionals pride themselves on repeat business, such that it is not uncommon for a design professional to have multiple projects on-going with a single client at one time. When claims of design malpractice arise on one project, some clients attempt to use withholding fees on a separate, unrelated, project to offset the perceived liability on the first project. Such actions can negatively (and severely) impact a design professional’s cash flow. The revised mechanic’s lien statute provides a basis for pushing back against such unfair conduct. At the same time, while it is far more common for owners and general contractors to engage in §cross-project “self-help” withholding, prime designers should also take caution before they withhold fees from subconsultants.

Historically, design professionals have been embraced within the meaning of a “contractor,” as defined in the mechanic’s lien statute. See Cain v. Rea, 159 Va. 446, 451 (1932) (“We are unable to draw the distinction between one who puts his labor into plans for the erection of a building and actually supervises its erection, and one who in the role of a bricklayer or carpenter actually performs a manual service. That an architect is embraced in the protecting provisions of the statute is in our opinion conclusive of his right to file a mechanic's lien on property not exempt by statute or public policy.”) As such, the recent modifications to Virginia mechanic’s lien statute should apply to design professionals:

Any breach or violation of this section may give rise to a civil cause of action for a party in contract with the general contractor or subcontractor, as appropriate; however, this right does not affect a contractor’s or subcontractor’s right to withhold payment for failure to properly perform labor or furnish materials on the project. Any contract or subcontract provision that allows a contracting party to withhold funds due under one contract or subcontract for alleged claims or damages due on another contract or subcontract is void as against public policy.
(Va. Code § 43-13.)

In other words, while withholding of fees under a contract may be permitted in circumstances where the design professional’s negligence has caused damage to their client on the project in question, the Virginia legislature has rejected provisions which would expand a client’s right to withhold fees from the design professional beyond the project in question. Not only does this new language prohibit cross-withholding provisions included in contracts, it implicitly rejects the practice as “against public policy” in Virginia. If faced with a client engaging in such a practice, the statute provides an avenue for asking your client to remedy their conduct before escalating matters. While it is far more common for owners and general contractors to engage in such cross-project “self-help” withholding of fees, prime designers should also take caution before they take similar actions related to a subconsultants. The statute provides such subconsultants the same protection from cross-project withholding.

Nathan B. Greyard is an Associate at Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals in Virginia, DC, and Maryland. Nathan is based in the firm’s Charlottesville, VA office. The content of this article was prepared to educate related to potential risks, but is not intended to be a substitute for professional legal advice.