RD715 - Report on Current Virginia Law and Best Practices as they Relate to the Statute of Limitations on State Contracts for Construction Services – December 10, 2019

Executive Summary:

The 2019 Appropriation Act required DGS to conduct a review of current Virginia law and best practices as they relate to the statute of limitations on state contracts for construction services and its fiscal implications.

Research revealed that there is no, and never has been, statute of limitations for the Commonwealth and its agencies to file a legal action for breach of contract. Under Virginia law, statutes of limitation do not apply to the Commonwealth unless it is expressly referenced in the statutes. Virginia’s general statute of limitation for filing actions for breach of written contract does not refer to the Commonwealth. Nor did the General Assembly include a limitation for the Commonwealth’s actions in connection with passage of the Virginia Public Procurement Act (VPPA).

Other states’ statute of limitations vary: 22, including the District of Columbia, do not have a statute of limitations; 28 states have statute of limitations ranging from 3 to 15 years, with an average of 7.3 years. (See Appendix A for a state-by-state summary.)

DGS engaged stakeholder groups to better understand opinions about adding a statute of limitations to the Code of Virginia and to collect data on past claims that have been filed by state public bodies against construction contracts. Stakeholders included local government public bodies, state public bodies, institutions of higher education, contractors, architects and engineers, bonding and insurance companies, lobbyists, and industry legal representatives.

In consultation with JLARC and the OAG, DGS created a survey with 74 questions for the stakeholders. The survey solicited responses regarding knowledge of current law and the possibility of implementing a statute of limitations on state contracts for construction services. DGS solicited over 1,500 individuals and received 507 responses.

In October, DGS held stakeholder meetings over two days. The meetings allowed stakeholder groups the opportunity to hear an overview of the survey results and present their positions. One hundred twenty-one individuals registered and 93 attended, with 23 presenting their position.

The stakeholders presented varying opinions on whether Virginia should have a statute of limitations and, if so, what that limitation should be. Public bodies and institutions of higher education indicate that the law should remain unchanged. Private sector entities expressed a preference for establishing a statute of limitations, suggesting time frames from 5 to 10 years.

The fiscal implications related to statute of limitations are complex and indeterminate. The survey indicated that 58 percent of respondents were not aware that state agencies have no statute of limitations. Contractors, architects and engineers indicated that they now will consider their exposure and price services accordingly when responding to construction services procurement opportunities. Agencies indicated that adding a statute of limitations will result in a need for more inspections, which will increase agency costs. Should a statute of limitations be added and an agency discover a construction issue after the limitation has expired, agencies reported that they would need to seek an additional funding appropriation to address the issue.

The research conducted for this report does not indicate that a change to the Code of Virginia is needed related to a statute of limitations for construction services contracts for state agencies. Although adding a statute of limitations arguably could be financially beneficial to private sector entities, no data or information presented during DGS’s research was sufficiently compelling to support that doing so would meaningfully benefit either public bodies or the private sector. Moreover, it does not appear that state agencies frequently make claims against construction projects. Respondents to the survey reported that, in the last 15 years, 51 claims were made by state agencies on contracts for construction services. While more than 51 claims were likely made over the 15-year period, this is the best information currently available to estimate the frequency of claims, and the 51 claims reported represent only one percent of construction contracts awarded by state agencies during that period. In addition, the absence of a statute of limitations does not appear to deter contractors from doing business in the Commonwealth, as the number of registered contractors in Virginia increased over the past three fiscal years; in FY17 there were 590 contractors registered, in FY18 640 contractors were registered, and in FY19 677 contractors were registered.