{"id":1276,"date":"2013-02-01T08:21:43","date_gmt":"2013-02-01T15:21:43","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=1276"},"modified":"2013-02-01T08:21:51","modified_gmt":"2013-02-01T15:21:51","slug":"the-differences-between-pay-if-paid-and-pay-when-paid-clauses-in-construction-contracts","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/the-differences-between-pay-if-paid-and-pay-when-paid-clauses-in-construction-contracts\/","title":{"rendered":"The Differences Between \u201cPay if Paid\u201d and \u201cPay when Paid\u201d Clauses in Construction Contracts"},"content":{"rendered":"

Stephen K. Pudner – January 15, 2013<\/p>\n

As attorneys that draft construction contracts and litigate construction disputes on a regular basis, we have seen how construction contract terms are used in contracts and what the practical effects of these terms may be on the rights and obligations of parties to those contracts.\u00a0 While a previous posting on this site discussed the various pricing methods that may be used in construction contracts, this posting provides a brief overview of two related, but distinct, payment terms that appear in most construction subcontracts, but that are often misunderstood:\u00a0 “pay if paid” and “pay when paid” clauses.<\/p>\n

If you are a prime or sub-contractor, you have likely heard of pay if paid and pay when paid clauses in construction subcontracts, and may have even seen these terms in a contract to which you are a party.\u00a0 Nevertheless, you may not fully understand what these terms mean, how they differ from each other, and how they each affect your rights and potential liability.\u00a0 While both of these terms affect a prime contractor\u2019s obligations to subcontractors when it is not paid by the owner, their practical effects differ in important ways.<\/p>\n

A 2010 opinion from the Alabama Supreme Court in Lemoine Co. of Alabama, L.L.C. v. HLH Contractors, Inc. discusses the enforceability of “pay if paid” and “pay when paid” clauses under Alabama law.\u00a0 See 62 So. 3d 1020 (Ala. 2010).<\/p>\n

The court explained that a “pay when paid” clause (i.e., that the prime contractor will pay the subcontractor within X days of receiving payment from the owner) is simply a timing mechanism and generally will not excuse the prime contractor from having a payment obligation to the subcontractor, regardless of whether the owner has paid the prime contractor.<\/p>\n

In contrast, the court found that a “pay if paid” clause (i.e. that the prime contractor only incurs an obligation to pay the subcontractor if, and only if, it is first paid by the owner) may constitute a condition precedent that excuses the prime contractor from having a payment obligation to the subcontractor if the owner does not pay the prime contractor.\u00a0 The court explained, however, that conditions precedent such as pay if paid clauses are viewed with disfavor by courts and will not be enforced if their terms are ambiguous.<\/p>\n

Nevertheless, in Lemoine, the court found that the contract’s pay if paid clause was worded in such a way that it was a condition precedent that excused the prime contractor from having any payment obligations to its subcontractor.\u00a0 It is important to note that the court\u2019s analysis depended entirely on the precise language in the pertinent clauses in the subcontract, and differing language in other contracts may cause pay if paid and pay when paid clauses to be interpreted or enforced differently<\/p>\n

As illustrated by the opinion in Lemoine, contractors and subcontractors need to ensure that they understand the full meaning and effect of the clauses contained in their construction contracts, because they will be bound by the language of these clauses.<\/p>\n

via The differences between \u201cpay if paid\u201d and \u201cpay when paid\u201d clauses in construction contracts – Lexology<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Stephen K. Pudner – January 15, 2013 As attorneys that draft construction contracts and litigate construction disputes on a regular basis, we have seen how construction contract terms are used in contracts and what the practical effects of these terms may be on the rights and obligations of parties to those contracts.\u00a0 While a previous… Continue reading The Differences Between \u201cPay if Paid\u201d and \u201cPay when Paid\u201d Clauses in Construction Contracts<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14,9],"tags":[72,289,290],"class_list":["post-1276","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-construction-contracts","tag-construction-contracts-2","tag-pay-if-paid","tag-pay-when-paid","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nThe Differences Between \u201cPay if Paid\u201d and \u201cPay when Paid\u201d Clauses in Construction Contracts - Advise & Consult, Inc.<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/the-differences-between-pay-if-paid-and-pay-when-paid-clauses-in-construction-contracts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Differences Between \u201cPay if Paid\u201d and \u201cPay when Paid\u201d Clauses in Construction Contracts - Advise & Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"Stephen K. 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