{"id":889883,"date":"2016-06-27T16:40:35","date_gmt":"2016-06-27T22:40:35","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=889883"},"modified":"2016-06-27T16:40:35","modified_gmt":"2016-06-27T22:40:35","slug":"pair-of-cases-concerning-pay-if-paid-provisions","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/pair-of-cases-concerning-pay-if-paid-provisions\/","title":{"rendered":"Pair of Cases Concerning Pay-if-Paid Provisions"},"content":{"rendered":"

Katherine E. Kohm | The Dispute Resolver<\/a> | June 23, 2016<\/p>\n

Within the last month, two decisions with two\u00a0outcomes were issued concerning “pay-if-paid” provisions<\/a>.\u00a0Observe that a\u00a0“pay-if-paid” provision is a true condition precedent\u00a0in that a general contractor is\u00a0not required to pay its subcontractor unless and until it receives payment from the owner.\u00a0 A different result flows from a\u00a0“pay-when-paid”\u00a0provision which\u00a0only allows the general contractor a reasonable time\u00a0to pay the subcontractor\u00a0after receiving payment from the owner,\u00a0but the risk of non-payment from the owner is not shifted to the subcontractor.<\/p>\n

In Midlantic Fire, LLC v. Ernest Bock & Sons, Inc.<\/u>,\u00a0No. DC\u20138529\u201314, 2016 WL 3093075, at *1 (N.J.Super. Ct. June 3, 2016), the pay-if-paid clause stated:<\/p>\n

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Payment by Owner to the General Contractor for the work\/materials invoiced by the Subcontractor\/Supplier shall be a condition precedent to General Contractor’s obligation to pay Subcontractor\/Supplier. Accordingly Subcontractor\/Supplier agrees and understands that it shall bear the risk of non-payment by the Owner and shall be entitled to no compensation from the General Contractor in the event of non-payment by the Owner for its work\/materials.<\/div>\n<\/blockquote>\n<\/div>\n
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The plaintiff subcontractor installed\u00a0a\u00a0fire protection system in accordance with drawings and plans supplied by the defendant general contractor.\u00a0 Subsequent to installation, the\u00a0general contractor learned that the sprinklers interfered with structural supports that needed to be installed.\u00a0 The subcontractor issued a change order, which was approved by the general contractor.\u00a0 The subcontractor performed the changed work.\u00a0 When the general contractor submitted the invoice for payment, the owner declined to pay because there was a “lack of communication [and] coordination” between the general contractor and subcontractor. The general contractor, citing the pay-if-paid provision<\/a>, then refused to pay the subcontractor.\u00a0\u00a0 The plaintiff subcontractor prevailed at trial, and\u00a0the defendant general contractor\u00a0appealed the application of the pay-if-pay by law.<\/p>\n

Applying Pennsylvania law, per the contract, the court affirmed in favor of the subcontractor because “courts are reluctant to enforce a conditional payment provision against an unpaid subcontractor that is not responsible for the condition giving rise to the payment defense” and because “parties to a contract have an implied duty not to frustrate conditions precedent to their performance” (citing\u00a0Quinn Constr., Inc. v. Skanska USA Bldg., Inc.<\/u>, 730 F. Supp.2d 401, 420 (E.D.Pa.2010)).\u00a0 Because the subcontractor had\u00a0relied on the plans and drawings submitted by the general contractor and therefore because\u00a0all coordination among subcontractors was the general contractor’s responsibility, the subcontractor was not responsible for the non-payment.\u00a0Rather the defendant general contractor’s own error spurred the need for the change order and the owners refusal to pay the change order. As such, the pay-if-paid provision was inapplicable and the general was required to pay the subcontractor.<\/p>\n

In A. Zahner Company v. McGowan Builders, Inc.<\/u>, No. WD 78063, 2016 WL 2994022, (Mo.App. Ct May 24, 2016), the pay-if-paid stated:<\/p>\n

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[Subcontractor] agrees that [the general contractor] will not be responsible to make any payment, progress or final, to [subcontractor] for any and all of the goods identified in this Purchase Order unless and until [general contractor] receives payment for such goods from the Owner of the project\u00a0. . . .\u00a0If Subcontractor is not paid within 45 days of when a pay application is submitted, Subcontractor may stop the Work of this Subcontract until payment is received . . . .<\/div>\n<\/blockquote>\n
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The trial court had concluded that the above provision was ambiguous because the “unless and until” language\u00a0was a condition precedent to payment\u00a0shifting the risk of non-payment to the subcontractor\u00a0whereas the “stop the Work”<\/a> sentences “eased the burden” of risk\u00a0to the subcontractor.\u00a0 The appellate court disagreed and instead held that the entire\u00a0provision could be read harmoniously. That court held that\u00a0altogether the provision simply “distributes financial risk between the parties and provides both [with] a measure of financial protection.”\u00a0 In sum, the general contractor did not need to pay if owner did not pay.\u00a0\u00a0As its recourse,\u00a0the subcontractor did not need to continue work if it was not paid.\u00a0 As such, the appellate court concluded that the pay-if-paid provision was applicable and\u00a0remanded the\u00a0case\u00a0for fact-finding — whether the owner indeed did not pay the general contractor.<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Katherine E. Kohm | The Dispute Resolver | June 23, 2016 Within the last month, two decisions with two\u00a0outcomes were issued concerning “pay-if-paid” provisions.\u00a0Observe that a\u00a0“pay-if-paid” provision is a true condition precedent\u00a0in that a general contractor is\u00a0not required to pay its subcontractor unless and until it receives payment from the owner.\u00a0 A different result flows… Continue reading Pair of Cases Concerning Pay-if-Paid Provisions<\/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":[9],"tags":[72,7568],"class_list":["post-889883","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-construction-contracts-2","tag-pay-if-paid-clause","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nPair of Cases Concerning Pay-if-Paid Provisions - 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