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The prime contract between the project owner and general contractor included a provision stating that the statute of limitations for filing all claims would accrue on the date of substantial completion. Since the contract between the prime and its subcontractors included a flow down provision incorporating the terms of the owner’s prime contract, the statute of limitations for any suit by the prime contractor against its subcontractor also accrued as of the date of substantial completion. The fact that the project owner did not formally reject the subcontractor’s masonry work until eight months after substantial completion of the project did not delay the accrual date of the statute of limitations.

In Steadfast Insurance Company a/s/o Skanska USA Building, Inc. v. Brodie Contractors, Inc. (U.S. D.C. W.D. VA, (Case No. 4:07CV00058, October 2008)(memorandum opinion), the plaintiff filed suit against a masonry subcontractor for breach of contract and breach of warranty. The defendant moved for summary judgment, arguing that the flow down provision in the subcontract required the suit to have been filed within five years of the date of substantial completion – based on the Virginia five year statute of limitations period applicable to breach of contract.

The prime contract with the owner provided: “The contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by the term of the Contract Documents, and to assume toward the Contractor all the obligations and responsibilities, … which the Contractor, by these Documents, assumes toward the Owner and Architect.” It further provided that the subcontract agreement “shall allow to the Subcontractor, unless specifically provided otherwise in the subcontract agreement, the benefit of all rights, remedies and redress against the Contractor that the Contractor, by the Contract Documents, has against the Owner.”

In compliance with the above-quoted terms of the prime contract, the subcontract contained the following flow-down provision: “The Contract Documents for this Subcontract consist of this Agreement and any exhibits or attachments hereto, the Agreement between the Owner and Contractor of the above-referenced Project, all Conditions to the Agreement between the Owner and Contractor….”

This flow-down provision effectively incorporated the following language from the prime contractor pertaining to when suits must be filed: “As to acts or failures to act occurring prior to the relevant date of substantial completion, any applicable statute of limitations shall commence to run [and] any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of substantial completion.” Since the subcontract did not contain a statute of limitations period, the prime contract provision was held by the court to govern.

The court then considered whether the fact that the project owner sent a formal rejection letter concerning the subcontractor’s masonry work 8 months after the date of substantial completion delayed the accrual of the statute of limitations. [The prime contractor and owner had both expressed objections to the work prior to this as well]. The court found that “Under Virginia contract law and section 13.7.1 of the Prime Contract, a rejection letter does not establish when the statute of limitations accrues.” Since the only relevant accrual date, according to the contract, was the date of substantial completion, this is the date the court concluded must be applied. The complaint by the prime contractor against its subcontractor was therefore found to have been filed four months past the five year statute of limitations. For this reason, summary judgment was granted – dismissing the complaint.

Comment: Specifying an easy to determine date, such as the date of substantial completion, for the accrual of the statute of limitations is sound contract drafting. It eliminates uncertainty and ambiguity over when a cause of action accrues. It avoids having parties bringing law suits years after a project is completed based upon their allegations that they only belatedly discovered their damages.