{"id":696,"date":"2012-07-20T13:34:34","date_gmt":"2012-07-20T19:34:34","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=696"},"modified":"2012-07-20T13:34:34","modified_gmt":"2012-07-20T19:34:34","slug":"what-is-a-pay-if-paid-contract-clause-and-can-it-apply-to-a-construction-subcontractor","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/what-is-a-pay-if-paid-contract-clause-and-can-it-apply-to-a-construction-subcontractor\/","title":{"rendered":"What is a \u201cPay if Paid\u201d Contract Clause and Can it Apply to a Construction Subcontractor?"},"content":{"rendered":"<p>Construction Law Info Blog &#8211; July 10, 2012<\/p>\n<p>What constitutes a \u201cpay-if-paid\u201d construction contract clause? The United States Court of Appeals for the Third Circuit recently addressed this question in Sloan v. Liberty Mutual Insurance Company, 653 F.3d 175 (3d Cir. 2011).<\/p>\n<p>That case involved a waterfront condominium in Philadelphia.\u00a0 Isla of Capri Associates LP, the developer of the condominiums (\u201cIOC\u201d), contracted with Shoemaker Construction Co. (\u201cShoemaker\u201d) to be the contractor for the project (\u201cContractor Contract\u201d).\u00a0 Subsequently, Shoemaker hired subcontractor Sloan &amp; Co. (\u201cSloan\u201d) to perform construction involving drywall and carpentry (\u201cSubcontract\u201d).\u00a0 Liberty Mutual Insurance Co. (\u201cLiberty\u201d) issued a surety bond guaranteeing payment for the subcontractors work.\u00a0 After the work was completed, IOC refused to pay Shoemaker for monies owed under the contractor contract because IOC was unhappy with some of the subcontractors\u2019 work.\u00a0 As a result, Shoemaker withheld the remaining balance due to Sloan.<\/p>\n<p>Sloan filed a claim against Liberty for payment pursuant to the surety bond. Id. at 177.\u00a0 Liberty denied any payment obligation under the premise that Paragraph 6.f of the subcontract contained a provision that conditioned Sloan\u2019s right to payment on IOC\u2019s payment to Shoemaker (a pay-if-paid clause). See id.\u00a0 Therefore, Sloan was not entitled to payment since Shoemaker never received payment from IOC. Id.\u00a0 The United States District Court for the Eastern District of Pennsylvania entered partial summary judgment for Sloan, rejecting Liberty\u2019s view of the contract. Id. at 178.<\/p>\n<p>The dispute here centered on the interpretation of Paragraph 6.f of the subcontract, which dealt with final payment.\u00a0 The first subparagraph provided: \u2018Final payment shall be made within thirty (30) days after the last of the following to occur, the occurrence of all of which shall be conditions precedent to such final payment . . .\u2019 Id. at 179.\u00a0 There were seven (7) conditions precedent, one of which was that \u2018[IOC] shall have accepted the Work and made final payment thereunder to [Shoemaker].\u2019 Id.\u00a0 Another provided that Shoemaker \u201cshall have received final payment from [IOC] for [Sloan\u2019s] work.\u2019 Id.<\/p>\n<p>Paragraph 20\u2019s liquidating provision in the subcontract further clarified the extent of Shoemaker\u2019s responsibility for payment to Sloan:<\/p>\n<p>In the event [Sloan] asserts a claim for payment of the Subcontract Sum or a portion therof . . . and in the event that [Shoemaker] in its sole, exclusive and arbitrary discretion submits said . . . Claim to [IOC] . . . for a decision or determination, then all decisions and determinations made by [IOC] or its representative shall be binding upon [Sloan] even though [Sloan] may not be a party thereto.<\/p>\n<p>Id. at 182.<\/p>\n<p>When Liberty appealed the United States District Court for the Eastern District of Pennsylvania\u2019s judgment, the Third Circuit was satisfied that the contract stipulated a pay-if-paid compensation policy for Sloan. See id. at 184.\u00a0 The Third Circuit concluded that \u201cParagraphs 20 and 6.f create a mechanism for passing through Sloan\u2019s remaining claims for final payment and peg Sloan\u2019s recovery to the amount that Shoemaker receives from IOC for Sloan\u2019s work.\u201d Id.\u00a0\u00a0 Sloan, therefore, received a proportional\/pro rata share of the recovery Shoemaker gained from its separate lawsuit against IOC rather than receiving the full balance it was owed under the contract. See id.<\/p>\n<p>The lesson here for subcontractors is to be aware of the pay-if-paid issue when drafting the subcontractor agreement.<\/p>\n<p>via <a href=\"http:\/\/www.constructionlawinfoblog.com\/2012\/07\/what-is-a-pay-if-paid-contract-clause-and-and-can-it-apply-to-a-construction-subcontractor.html\">Construction law info blog: What is a \u201cPay if Paid\u201d Contract Clause and Can it Apply to a Construction Subcontractor?<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Construction Law Info Blog &#8211; July 10, 2012 What constitutes a \u201cpay-if-paid\u201d construction contract clause? The United States Court of Appeals for the Third Circuit recently addressed this question in Sloan v. Liberty Mutual Insurance Company, 653 F.3d 175 (3d Cir. 2011). That case involved a waterfront condominium in Philadelphia.\u00a0 Isla of Capri Associates LP,&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/what-is-a-pay-if-paid-contract-clause-and-can-it-apply-to-a-construction-subcontractor\/\">Continue reading <span class=\"screen-reader-text\">What is a \u201cPay if Paid\u201d Contract Clause and Can it Apply to a Construction Subcontractor?<\/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":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14,9,172],"tags":[12,22,193],"class_list":["post-696","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-construction-contracts","category-construction-law-2","tag-construction","tag-insurance","tag-pay-if-paid-contract-clause","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is a \u201cPay if Paid\u201d Contract Clause and Can it Apply to a Construction Subcontractor? - Advise &amp; 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\/what-is-a-pay-if-paid-contract-clause-and-can-it-apply-to-a-construction-subcontractor\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a \u201cPay if Paid\u201d Contract Clause and Can it Apply to a Construction Subcontractor? - Advise &amp; Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"Construction Law Info Blog &#8211; July 10, 2012 What constitutes a \u201cpay-if-paid\u201d construction contract clause? 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