{"id":893455,"date":"2018-01-10T14:24:31","date_gmt":"2018-01-10T21:24:31","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=893455"},"modified":"2018-01-10T14:24:31","modified_gmt":"2018-01-10T21:24:31","slug":"construction-group-news-extremely-clear-pay-paid-clause-enforced","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/construction-group-news-extremely-clear-pay-paid-clause-enforced\/","title":{"rendered":"Construction Group News: Extremely Clear Pay-If-Paid Clause is Enforced"},"content":{"rendered":"<p>Michael J. Donnelly | <a href=\"https:\/\/www.natlawreview.com\/article\/construction-group-news-extremely-clear-pay-if-paid-clause-enforced\" target=\"_blank\">The National Law Review<\/a> | January 2, 2018<\/p>\n<p class=\"rtejustify\">Every contract involves the risk of insolvency, and every construction subcontract involves the risk of the owner\/developer failing to make the payments that the contractor intends to use to pay its subcontractors. Frequently, general contractors seek to shift this risk onto their subcontractors through the use of clauses which describe payment from the owner to the contractor as a condition precedent to payment to the subcontractor.\u00a0 Simply put, when the contractor is successful in shifting the risk to the subcontractor, the clause is known as \u201cPay-If-Paid\u201d.\u00a0\u00a0If contract language is not sufficient to transfer the risk, the clause is viewed as \u201cPay-When-Paid\u201d.\u00a0 A Pay-When-Paid clause merely defers the timing of the payment due to the subcontractor until the contractor has been paid by the owner, or some reasonable time after the work was performed even if payment has not been made to the contractor.<\/p>\n<p class=\"rtejustify\">The question of whether a contract involved a Pay-If-Paid clause was recently litigated under Connecticut law in the Superior Court in\u00a0<i>Baker Concrete Const. v. A. Poppajohn Co.<\/i>, 2017 WL 4106383.\u00a0 In that case, the parties had signed an agreement which provided that<\/p>\n<p class=\"rtejustify\">The Subcontractor expressly acknowledges and agrees that payments to it are contingent upon the Contractor receiving payments from the Owner.\u00a0 The Subcontractor expressly accepts the risk that it will not be paid for the Work performed by it if the Contractor, for whatever reason, is not paid by the owner for such Work.\u00a0\u00a0The Subcontractor states that it relies primarily for payment for Work performed on the credit and ability to pay off [sic] the Owner and not of the Contractor, and thus the Subcontractor agrees that payment by the owner to the Contractor for work performed by the Subcontractor shall be a condition precedent to any payment obligation of the Contractor to the Subcontractor.<\/p>\n<p class=\"rtejustify\">The\u00a0plaintiff subcontractor argued that the clause was unenforceable as a risk-shifting provision based on its interpretation of a series of Connecticut cases.\u00a0 However, upon review, the Court distinguished the case law upon which the subcontractor relied as either involving public jobs or involving clauses which were more ambiguous than the one in the parties\u2019 contract here.\u00a0\u00a0Judge Povodator specifically relied on the contract language that provided \u201cThe Subcontractor expressly accepts the risk that it will not be paid for the Work performed by it if the Contractor, for whatever reason, is not paid by the owner for such Work\u201d and &#8220;the Subcontractor agrees that payment by the owner to the Contractor for work performed by the Subcontractor shall be a condition precedent to any payment obligation of the Contractor to the Subcontractor\u201d in determining that there was no ambiguity as to what these parties intended.\u00a0\u00a0In making this determination, however, Judge Povodator did question as to whether such risk shifting would be permissible under Connecticut law on a public job.<\/p>\n<h4 class=\"rtejustify\"><strong>Takeaways<\/strong><\/h4>\n<p class=\"rtejustify\">This case once again emphasizes the need for clear contract language to effectively transfer or share the risk on nonpayment downstream.\u00a0 General contractors that wish to share with subcontractors the exposure for an owner\u2019s failure to pay must ensure that their subcontracts contain clear and enforceable Pay-If-Paid language such as the language in the subcontract at issue in this case.\u00a0\u00a0On the other hand,\u00a0subcontractors that believe that the general contractor should bear the risk of the owner\u2019s failure to pay must negotiate the removal of \u201cPay-If-Paid\u201d language from their subcontracts.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Michael J. Donnelly | The National Law Review | January 2, 2018 Every contract involves the risk of insolvency, and every construction subcontract involves the risk of the owner\/developer failing to make the payments that the contractor intends to use to pay its subcontractors. Frequently, general contractors seek to shift this risk onto their subcontractors&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/construction-group-news-extremely-clear-pay-paid-clause-enforced\/\">Continue reading <span class=\"screen-reader-text\">Construction Group News: Extremely Clear Pay-If-Paid Clause is Enforced<\/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":[9,172],"tags":[9895,72,7568],"class_list":["post-893455","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","category-construction-law-2","tag-advise-consult","tag-construction-contracts-2","tag-pay-if-paid-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>Construction Group News: Extremely Clear Pay-If-Paid Clause is Enforced - Advise &amp; 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