As a reminder, pay-if-paid provisions shift the risk of the Owner’s insolvency from the general contractor to the subcontractor. If the Owner does not pay the general contractor, the general contractor has no obligation to pay the subcontractor. That can be a harsh result for a subcontractor who did good work and has no relationship with the Owner. Up front negotiation is the best way to address these risks in subcontracts. Contractors may be open to (or welcome) some of the following alternate phrases:
Prevention Doctrine: Contractors may not be able to rely on the pay-if-paid provision if their own defaults cause the Owner to withhold payment. Consider the following:
Receipt by Contractor of payment from the Owner for Subcontractor’s Work is a condition precedent to Contractor’s obligation to pay Subcontractor all progress, change order or final payments unless Contractor’s or its subcontractors’ actions have caused Owner’s failure or refusal to make payment to Contractor.
Pay-When-Paid Provision: Courts have attempted to limit the effect of pay-if-paid provisions by simply allowing the general contractor more time to pay, instead of an absolute out. Consider the following:
If Contractor does not receive payment from the Owner for Subcontractor’s Work for any cause that is not the fault of Subcontractor, Contractor shall pay Subcontractor within forty-five (45) days of when Contractor’s payment to Subcontractor would otherwise be due.
Limited Pay-if-Paid Provision: Subcontractors can shoulder the risk if their deficient work causes the Owner to withhold payment. Consider the following:
Receipt by Contractor of payment from the Owner for Subcontractor’s Work is a condition precedent to Contractor’s obligation to pay Subcontractor all progress, change order or final payments only if Subcontractor’s breach of this Agreement or deficient or delayed Work is the cause of Owner’s failure or refusal to pay Contractor for Subcontractor’s Work.
Anti-Pay-if-Paid Provision: Many lengthy subcontracts will include pay-if-paid provisions in multiple places (progress and final payment, changes, dispute resolution, etc.). In the event the parties agree to strike these provisions, it may be appropriate to include a catch-all phrase. Consider the following:
Receipt by Contractor of payment from the Owner for Subcontractor’s Work is not a condition precedent to Contractor’s obligation to pay Subcontractor all payments owed under this Subcontract. The Parties agree that this provision supersedes all others in this Agreement that condition payment to Subcontractor on Contractor’s receipt of payment from the Owner.
Subcontractors or Contractors may not have considered all of the previously described provisions in between the take it or leave it approach to pay-if-paid contracts. With some negotiation, they may be convinced to make an exception to their standard forms.
As president of Hirschler and head of the firm's litigation section, Courtney knows how to lead people and projects to a successful outcome.
Leveraging deep experience in the construction industry, Courtney advises public and ...
Kelly’s practice focuses on construction law, commercial and product liability law, with an emphasis on dispute resolution—including mediation, arbitration, jury and bench trials in state and federal court. She routinely ...
Nate fully engages in each case and shoulders his clients’ needs. Communication, efficiency and careful judgment define his practice. In every case, he investigates competing claims to thoroughly understand their strengths ...
A professional engineer (P.E.) and an experienced lawyer, Webb began practicing at Hirschler following four years of work as a consulting engineer. His multidisciplinary practice focuses on general business and corporate law ...
SubscribeSubscribe to Hirschler by Email
- The Death of “Pay-When-Paid” in Virginia: Truth or Rumor?
- A New Trap for Unwary Contractors: Holding Payment on One Project for Claims in Another
- What Employers Need To Know About the OSHA Emergency Temporary Standard on COVID-19 Vaccination and Testing
- Kelly Bundy Appointed to the Virginia Safety and Health Codes Board
- Jaime Wisegarver Outlines Labor Department Guidance on Travel Time Pay in Construction Executive
- New Defense to Joint Liability Available to Contractors
- What Employers Need to Know About Virginia’s New Overtime Wage Act
- OSHA Increases Amounts of Civil Penalties for 2021
- Have Force Majeure Defenses Based on COVID-19 Been Successful This Year?
- Kelly Bundy and Liz Burneson Publish Article on Joint Employer Status in Construction Executive
- Occupational Safety and Health Act (OSHA)
- Dispute Resolution
- Government Contracts
- COVID-19, Coronavirus Outbreak
- Department of Labor (DOL)
- Little Miller Act
- Workforce Development
- Mechanic's Liens
- Miller Act
- Department of Professional and Occupational Regulation (DPOR)
- Fair Labor Standards Act
- Lien Waivers
- Force Majeure
- Virginia Employment Commission (VEC)
- Joint Checks
- Unjust Enrichment
- Virginia Workers' Compensation Commission
- Uniform Statewide Building Code
- Change Orders
- May 2022
- March 2022
- November 2021
- August 2021
- June 2021
- April 2021
- January 2021
- October 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- November 2019
- August 2019
- June 2019
- April 2019
- February 2019
- January 2019
- December 2018
- October 2018
- September 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- November 2017
- October 2017
- September 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016