It's not clear what $v_a$ and $v_b$ represent. Let's back up and change the notation. We will work in 1 spatial dimension.
There are two reference frames, $\mathcal O$ and $\mathcal O'$.
The velocity of the frame $\mathcal O'$ in the $\mathcal O$ frame is $v$.
The velocity of a particle relative to the primed frame $\mathcal O'$ is $u'$. Using this notation, it's clear which frame the velocity is relative to.
The velocity $u$ of the particle relative to the unprimed frame $\mathcal O$ is related to $u'$ by the relativistic velocity addition formula:
$$u = \frac{u' + v}{1 + \frac{u'v}{c^2}} $$
Remember, these are velocities so the signs will take care of themselves.
On top of that, when do we use the normal time dilation formula
The formula
$$\Delta t = \gamma \Delta t' $$
comes from Lorentz time coordinate transformation
$$\Delta t = \gamma(\Delta t' + \frac{v\Delta x'}{c^2})$$
when $\Delta x' = 0$. Thus, if $\Delta t'$ is the elapsed time of a clock at rest in the primed frame, $\Delta x' = 0$ and $\Delta t = \gamma \Delta t'$.
In other words, $\Delta t = \gamma \Delta t'$ only holds for the time between two co-located events in the primed frame.
Similarly, $l = \frac{l'}{\gamma}$ only holds for the distance between to simultaneous events in the primed frame.