Update on Unlimited Statute of Limitations Meeting

For the past two years, the Associated Builders and Contractors (ABC) and Associated General Contractors (AGC) have introduced a bill in the General Assembly to provide a statute of limitations (SOL) clause for the Commonwealth of Virginia. Although the proposals have not passed, the General Assembly directed the Department of General Services (DGS) via the 2019 Appropriation Act, to engage with industry stakeholders on this issue.

In August, a survey was sent out to 1,558 stakeholders in which 507 responses were received. The results of the survey were discussed on October 3 with industry representatives.

The following key points were presented:

  • 58% of respondents were not aware that the Commonwealth of Virginia does not have a SOL regarding construction and professional services contracts
  • 53% of respondents were from the A/E industry, 27% were from the construction industry, and the remaining responses were from attorneys, surety companies, state government/higher education stakeholders, and local governments
  • Most professional services claims come within less than a year after construction completion. By the sixth year, data seems to indicate that claims are non-existent to minimal on professional services
  • Most claims on construction services come between the fourth and sixth year, however, the data shows that significant claims can come at the 10-year mark and beyond

AIA Virginia and ACEC Virginia had several practitioners that spoke to this issue in the meeting.

Our thanks to Donald Booth, AIA, Jim Lowe, Esq., Kathy Blanchard, and Dave Albo (our lobbyist) for providing comments on this issue.

The key points from speakers were as follows:

  • A/E firms design to the standards of the time. If a firm designed a project in 1979, then it was designed to the standards in place at that time – which would be much different than the standards of today
  • If the Commonwealth of Virginia has an unlimited SOL, then practitioners could be at a disadvantage with procuring professional liability insurance for the sole reason of having state agency clients
  • Small businesses are directly affected since they are often sub-consultants and would be subject to the same unlimited SOL terms with the Commonwealth of Virginia as the prime contract holder
  • Claims are often tied to confidentiality agreements which limits data sharing
  • Electronic storage of information changes over time – long term storage will be unreliable as technology changes
  • Claims to A/E’s usually cease after 3-4 years
  • A/E professional liability insurance is claims-based. This means the practitioner has to use the policy in place at the time of the claim regardless of when the project was completed
  • The industry must have certainty in order to manage risk

DGS asked all presenters what the SOL duration should be. The answer was that every firm developed a policy for record retention. The industry standard is usually five to seven years, although firms may decide to maintain records for up to 10 years.

DGS indicated that the final determination was going to be a number that brought a “little pain” to both sides. They will review all of the comments and provide a report to the General Assembly in December.

Statute of Limitations

Recent Va. Court Decision Has Some Concerned About Statute of Limitations

The below is not the result of exhaustive legal research and it should not be considered legal advice. We encourage anyone interested in this issue to contact and consult with local legal counsel.

(In light of the referenced case, an architect that has entered into an agreement with a Commonwealth agency and intends to utilize an AIA Standard Architect-Consultant agreement should consider adding language to the Consultant agreement explicitly waiving the applicability of the Statute of Limitations.)

A recent court case in Virginia (Hensel Phelps Construction Company v. Thompson Masonry Contractor, Inc., Et. Al.) has some worried about “flow down” or “pass-through” provisions in architect/consultant agreements. Though this case was specific to a construction contract (and warranties), the concern is that this could set a precedent for other contracts.

In the referenced case, the Contractor entered into the prime agreement with Virginia Polytechnic Institute and State University (Virginia Tech) for construction of a student center. The prime agreement was silent on the statute of limitations. Because Virginia Tech was involved, Virginia Code Section 8.01-231 applied. It states that as a Commonwealth agency, the statute of limitations did not apply to Virginia Tech.  The Contractor’s agreements with the Subcontractors incorporated the prime agreement. The Subcontracts were also silent on statute of limitations — meaning that they did not independently discuss the applicable waiver of the statute of limitations to claims by Virginia Tech.

Virginia Tech eventually brought a claim against the Contractor outside of the normally applicable statute of limitations, but the claim was not time barred because of Section 8.01-231. Unfortunately for the Contractor, any related claims against the subs were time barred (per the lower courts) because the Contractor did not get the benefit of Section 8.01-231 and its subcontracts were silent on the statute of limitations (SOL). As such, the standard 5-year statute of limitations applied to the Contractor’s claims against the subcontractors.

This case was up on appeal by the Contractor who claimed that the subcontractors were bound to it by the same terms and conditions (including the statutorily imposed waiver of the SOL) it was bound to Virginia Tech, by virtue of incorporating the prime contract into the subcontract.  The Virginia Supreme Court did not agree, noting that for there to be an effective waiver, there must be an “intentional relinquishment of a known right, with both knowledge of its existence and an intention to relinquish it.” The Court then noted that “a general incorporation provision is insufficient to waive a limitations period as it does not expressly acknowledge the right to a limitations period or intent to waive that right.” The result then, is that Virginia Tech can bring claims against the Contractor and the Contractor is unable to pass through those claims to the responsible Subs due to the statute of limitations. This case triggered questions on how this opinion would impact C401-2007, Standard Form of Agreement Between Architect and Consultant, if at all.

Where an Architect has entered into an agreement with a Commonwealth agency and intends to utilize an AIA Standard Architect-Consultant agreement, in light of the referenced case, the Architect should add language to the Consultant agreement explicitly waiving the applicability of the Statute of Limitations if it wants to avoid the same circumstances the Contractor found itself in in the referenced case. C401-2007 is silent on the time limits to bring claims, as was the consultant agreement in the referenced case. Accordingly, if C401-2007 were used by an Architect under similar circumstances, the result would likely be the same. It would appear that a court would find that because C401-2007 does not specifically waive the statute of limitations and the prime contract, which is incorporated by reference, is also silent on the statute of limitations, there would be no waiver of the statute of limitations.

It should also be noted that C401-2007 is silent on the time limit to bring claims because it is coordinated for use with our standard Owner-Architect agreements, such as B101-2007 or B103-2007. Section 8.1.1 of B101-2007 explicitly addresses the time limit on claims, stating that “The Owner and Architect shall commence all claims and causes of action … within the period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the Work.” As such, when C401 incorporates the prime agreement, it is not incorporating a document silent on the time limits of claims. Under our intended contracting scheme, C401-2007 incorporates an agreement with the above quoted language. Anytime someone uses an AIA Contract Document in conjunction with a document outside our coordinated set of agreements, they should pay extra close attention to how the differences in the non-AIA Contract Document will impact the AIA Contract Document. As is always the case, users should consult with a local attorney to ensure that the agreement fits their particular needs and circumstances.