Why Construction Subcontractors Should Avoid “Pay When Paid” Contracts

Web Admin - Thursday, February 28, 2019
Rolling Meadows civil litigation attorney breach of contractAs a construction subcontractor, you need to be careful about how your contracts are written, or you could expose yourself to substantial risk of non-payment. One particular clause to watch out for when signing a subcontractor construction contract is the clause which specifies the circumstances of payment, also known as a payment contingency clause. This provision may take the form of either “pay when paid” or “pay if paid,” and there is a meaningful legal difference between the two.

What Is a “Pay When Paid” Clause in a Construction Contract?

It is a generally accepted practice in the construction industry that a subcontractor gets paid only after the general contractor gets paid by the property developer. If a project developer fails to pay the general contractor on time or at all, the subcontractor is also at risk of being paid late or not at all, depending on how their contract is written.

Most state courts, including Illinois, have ruled that a “pay when paid” clause does not excuse the general contractor from paying subs in the event that the property developer does not pay the general contractor. Rather, a “pay when paid” clause may be interpreted as merely specifying an approach for the timing of payments, i.e., the number of days between the time when the general contractor receives payment from the property developer and distributes payments to subcontractors.

In contrast, a “pay if paid” clause is interpreted by the courts as meaning that subcontractors will not be paid unless and until the general contractor is paid by the property developer. This shifts the risk of non-payment from the general contractor to the subcontractor. As long as the contract language is precisely written and makes it clear that the subcontractor accepts the risk that they will not be paid if the general contractor is not paid, the courts will enforce a “pay if paid” clause. If there is any ambiguity, the courts could order payment to a subcontractor even if the general contractor is not paid.

Why Should Construction Subcontractors Object to “Pay If Paid” and “Pay When Paid” Contracts?

Because the general contractor controls access to the work, they often have the leverage to demand that subcontractors accept contingent payment clauses in their contracts. However, if you are a subcontractor, it is not in your best interests to accept a “pay if paid” or “pay when paid” clause in your contracts. You are legally obligated to pay for all of your equipment and labor expenses, so you need to protect your right to be paid by the general contractor in a timely manner. 

Because they are in direct contact with the property developer, the general contractor has a greater ability than a subcontractor to assess the property developer’s finances and ability to pay. Therefore, it is only right that the general contractor should bear the risk of late payment or non-payment by the developer.

Contingent payment clauses can make it harder for you to obtain payment if the property developer breaches their contract with the general contractor. Because your contract is with the general contractor, you have no standing to sue the property developer for failure to pay. Your only recourse is typically to secure a mechanic’s lien against the property developer. The Illinois mechanic’s lien act, 770 ILCS 60/21(e), specifically protects your right as a subcontractor to file a lien even if your contract with the general contractor has a payment contingency clause. 

Consult a Palatine Construction Contracts Lawyer

It is far more cost-effective in the long run to have a lawyer review your contracts before you sign them rather than to sue someone for breach of contract after a deal goes bad or to go after money owed to you by obtaining a mechanic’s lien. Call an experienced Arlington Heights civil litigation attorney at 847-934-6000 for a free initial consultation about your current legal needs. At Drost, Gilbert, Andrew & Apicella, LLC, we have the experience in both contract law and real estate law to support a wide range of legal needs for real estate developers and construction companies. 

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.


Recent Posts


insufficient documentation Palatine drug lawyer Illinois job attorney truck collisions insurance claim dispute attorney Rolling Meadows criminal lawyer Illinois insurance dispute lawyers traumatic brain injury estate tax paid sick leave motorcycle accident lawyer comparative negligence Crystal Lake civil litigation lawyer Rolling Meadows employment law attorneys construction contracts Transfer on Death Instrument automated cars IRA benefits Schaumburg drug defense lawyer Schaumburg traffic lawyer Palatine real estate lawyer internet icy parking lots Buffalo Grove life insurance attorney denial of life insurance drunk driving construction accidents fiduciary rule insurance dispute attorney Rolling Meadows personal injury lawyers Arlington Heights traffic attorney pain and suffering Palatine punch death Joliet general practice lawyers jet ski accidents Home Sale Contingencies Crystal Lake employment attorney Illinois employment laws fatal car accidents Des Plaines accident attorney corporate law real estate zoning Schaumburg wrongful death attorney Barrington estate planning lawyer car crash CAM Illinois personal injury attorney Inverness probate lawyer Colin H. Gilbert Crystal Lake medical malpractice law firm Schaumburg personal injury attorney first degree murder Long Grove estate planning attorney income distribution deducation dynasty trusts traffic crimes life insurance lawyer boating accidents Chicago estate planning lawyer Illinois insurance claim dispute lawyers cell phone accidents Schaumburg corporate attorney digital media accounts, estate planning, Arlington Heights estate planning attorney, Illinois Wage Payment and Collection Act Illinois personal injury lawyer Des Plaines real estate attorney Class A misdemeanor Rolling Meadows marijuana attorney Schaumburg employment attorney comp time changes to mortgage law real estate leasing wills Illinois injury lawyer Rolling Meadows employment law attorney Illinois probate lawyer Chicago corporate attorney living trust benefits slip and fall insurance claim denial fault based insurance IRA trust transfer employment contract, employment law, employment at-will, Deer Park employment law attorneys, contract, new real estate form cell phone tower data wills and trusts trucking accident lawyers life insurance claim denial, denial of life insurance claim Illinois civil litigation lawyer deed transfer unpaid overtime Kenilworth estate planning attorney employment law, Illinois employment laws civil litigation attorney mortgage construction accidents, personal injury, wrongful death, Arlington Heights personal injury attorneys, workers' compensation Rolling Meadows accident lawyer Long Grove estate planning attorneys hands free device South Barrington real estate attorney Rolling Meadows insurance lawyer car accidents Schaumburg estate planning attorney Rolling Meadows business lawyer consent to a search Schaumburg real estate lawyer employment contract Palatine corporate law attorneys special needs trust Detainer Actions Buffalo Grove real estate attorney hit and run accident IRELA Mount Prospect wills and trusts lawyers subcontractor DUI dog bites Rolling Meadows DUI lawyer deadly crashes POA Crystal Lake pedestrian accident lawyer Crystal Lake medical malpractice attorneys Crystal Lake bike accident lawyer distracted driving accidents criminal record dram shop law landlord tenant law involuntary manslaughter drug crimes lawyer spinal cord injuries Schaumburg manufacturing living trust vs will Rolling Meadows estate planning attorney healthcare Rolling Meadows employment attorney TBI suspended license Illinois real estate bike accident breach of contract Family Medical Leave Act Crystal lake insurance dispute attorney Buffalo Grove traffic lawyers liability claims Illinois traffic laws owner responsibility Arlington Heights wills and trusts lawyer DNR drunk driving statistics Inverness insurance attorney Deer Park DUI lawyer financial advisors Illinois living will Illinois insurance claim dispute lawyer breathalyzer test Barrington criminal defense lawyer Illinois insurance disputes murder personal injury lawyer Illinois Probate Act of 1975 Forcible Entry murder defense Legal Info workplace sexual harassment sexual harassment Retaliatory Discharge Long Grove wills and trusts attorneys overtime violations Federal Food Drug and Cosmetic Act probate lawyer whistleblower protections Barrington attorney Arlington Heights employment law attorneys Illinois boating accident lawyer Rolling Meadows traffic attorney Palatine life insurance lawyer Buffalo Grove car accident lawyer Schaumburg Attorney Palatine estate planning lawyer Des Plaines Deer Park medical malpractice attorney drugs Des Plaines motorcycle accident attorney loss of consortium employee discrimination rent to own real estate contracts Barrington Traffic Lawyer Crystal Lake car accident lawyer Illinois bicycle safety estate planning lawyer Crystal Lake will lawyer trusts Schaumburg car accident attorney operating agreements Kenilworth estate planning attorneys no contest clauses Schaumburg estate attorney LLCs social media after death Mt Prospect Attorney problem employees compensatory time right to work license suspension ACA Des Plaines medical malpractice attorney senior citizens insurance claim dispute DUI penalities driving Barrington employment law attorney living trust Chicago biking tips real estate attorney Barrington business law firm workers compensation benefits rest breaks Barrington boating accident attorney trustee Schaumburg injury lawyer advance healthcare directive drug crime personal injury claim uninsured motorist Illinois collections attorney revenge porn Illinois medical malpractice lawyers employees Buffalo Grove probate lawyer Schaumburg probate attorney insurance claim underinsured motorist Barrington medical malpractice lawyers denial of insurance claim Barrington injury attorney Rolling Meadows insurance attorney natural gas explosion Inverness personal injury attorney workers compensation Rolling Meadows personal injury attorney DMV startup company Illinois construction accident attorney beneficiary complications Illinois lawyer Illinois speeding lawyer civil litigation Illinois insurance claims lawyers coronavirus Deer Park criminal attorney Des Plaines tax law firm Barrington workers compensation attorney condo association Palatine employment law lawyer Crystal Lake injury attorney Rolling Meadows Attorney real estate lawyer personal injury Des Plaines civil attorney Arlington Heights injury attorney Des Plaines real estate lawyer insurance disputes Mount Prospect real estate lawyer Schaumburg medical malpractice lawyer estate planning for college students Crystal Lake medical malpractice lawyer personal injury claims taxes Arlington Heights estate planning attorney insurance attorney Illinois motorcycle accident lawyer contracts insurance claim denials real estate traffic laws Barrington personal injury attorney Deer Park traffic accident attorney Palatine traffic accidents products liability slip and fall accidents BAC life insurance policy severance agreements Arlington Heights personal injury attorney Illinois estate planning attorney Illinois insurance lawyer Illinois traffic accident lawyer pet bites crossover accidents Chicago will attorney, social media platforms, Illinois estate planning lawyer, Rolling Meadows insurance dispute lawyers, insurance dispute Liquor Control Act Deer Park employment law attorney residential real estate wrongful death DUI attorney insurance denials Deer Park traffic lawyer Inverness elder law lawyer Des Plaines Traffic Lawyer Arlington Heights tax lawyer guardianship attorney Inverness corporate attorney Illinois Illinois wills and trusts digital evidence Crystal Lake personal injury attorney Crystal Lake car accident attorney Illinois car accident attorney pedestrian accidents Crystal Lake business law attorneys sexual images Inverness injury lawyer Inverness civil lawyer tax attorney estate planning, digital assets, Revised Uniform Fiduciary Access to Digital Assets Act, Illinois digital assets, Illinois estate planning, caretaker rights Food and Drug Administration's Food Safety Modernization Act Illinois workplace discrimination attorney lapse in policy drug crimes Arlington Heights medical malpractice lawyer Crystal Lake law firm Barrington life insurance lawyer traffic accidents employee misclassification Rolling Meadows real estate attorney Illinois Smoke Detector Act Arlington Heights Attorney bad faith insurance claims Chicago trucking accident attorney pregnant women Palatine elder law attorney power of attorney life insurance Rolling Meadows boating crash lawyer DUI defense pet law eluding a police officer Palatine business attorney Buffalo Grove medical malpractice lawyers Illinois insurance attorney Arlington Heights car crash attorneys Illinois employment attorneys Schaumburg construction accident lawyer agent rumble strips Illinois business law atorneys Affordable Care Act power of attorney for healthcare traffic deaths FMLA criminal defense Palatine employment attorney traumatic brain injuries medical malpractice underfunded trust nursing home negligence product liability boating DUI Illinois defective products attorney holiday statistics pizza emoji Illinois medical malpractice case Rolling Meadows insurance dispute lawyers traffic violations digital assets overtime pay Rolling Meadows car accident lawyers cause-of-death exclusions insurance denial appeals employment lawyer insurance dispute, insurance dispute lawyers, insurance claim denial, insurance claim delays, Rolling Meadows insurance dispute attorneys traffic violations defense Palatine criminal defense lawyer Des Plaines collections attorney modern family estate planning Palatine construction attorney car collision Illinois wills and trusts attorneys Arlington Heights real estate lawyer digital information pedestrian injuries, pedestrian fatality Illinois small business estate planning, death tax, succession plans, business estate plans, Barrington estate planning lawyers Illinois traffic attorney Illinois employment lawyer estate planning Barrington criminal lawyer Arlington Heights employment attorney distracted driving accident victims Illinois medical malpractice attorney Chicago life insurance attorney Schaumburg personal injury lawyers Illinois tax attorney child safety Rolling Meadows corporate lawyer Illinois criminal defense attorney PTSD Palatine personal injury lawyer FSLA Rolling Meadows Traffic Lawyer Deer Park real estate law firm disability benefits bicycle accidents pay when paid contract Illinois personal injury commercial leases filing a medical malpractice claim ken apicella criminal law field sobriety test blended families Illinois rollover accident lawyers Illinois trucking safety license revocation foreclosed rental property expungement BUI independent contractor trust payments license unauthorized overtime Schaumburg civil litigation attorney Crystal Lake estate planning lawyer Schaumburg personal injury lawyer probate process Buffalo Grove injury lawyer top life insurance claim denials digital assets, digital fiduciary, estate planning, digital content, Long Grove estate planning lawyers insurance adjusters Des Plaines drug crimes lawyer medical marijuana defective products lawyer landlord Inverness accident lawyer trench injuries living wills Des Plaines pet law attorney Long Grove estate planning insurance agents Illinois Human Rights Act Illinois will lawyer Illinois LLC creation marijuana job lawyers Arlington Heights accident attorney jet ski Thanksgiving insurance claim delay Palatine insurance lawyer medication errors gift taxes Buffalo Grove corporate attorney personal injury, auto accident injuries, delayed injuries, serious injuries, Des Plaines personal injury attorneys Barrington estate planning attorney brain injury Barrington employment attorney sole proprietorship Illinois DUI attorney Inverness real estate lawyer Deer Park workers compensation lawyer denied insurance claim Illinois insurance claim attorney Schaumburg insurance lawyers Chicago will attorney Rolling Meadows medical malpractice lawyers Illinois employment law attorney Crystal Lake tax lawyer real estate contract Illinois home inspection Des Plaines claims law firm Des Plaines personal injury lawyers Rolling Meadows life insurance claim denial attorney Arlington Heights wills and trusts lawyers controlled substance Rolling Meadows tax attorney Buffalo Grove insurance claim dispute lawyers federal regulations for LLCs foreclosure Illinois employment law firm Inverness real estate attorney motorcycle accident rollover accidents Illinois jet ski accident lawyer Schaumburg criminal law attorney workers comp IRS liability food poisoning personal injury accidents Buffalo Grove traffic attorney Illinois wrongful termination lawyer blood alcohol content Illinois driving without license vacation home Illinois registered agent ObamaCare marijuana crimes attorney low-ball insurance settlement Long Grove real estate attorney healthcare claims Buffalo Grove personal injury lawyer Buffalo Grove employment lawyer material misrepresentation forming a corporation in Illinois Palatine injury attorney estate attorney home inspection lawyer Deer Park accident attorney Arlington Heights lawyer Des Plaines insurance attorney golf accidents pedestrian-automobile accident Illinois workplace lawyer Arlington Heights pedestrian accidents minimum wage accidental death benefits mass shooting Chicago car accident lawyer Inverness estate planning lawyer Riverwoods estate planning lawyer defective products trucking accidents estate planning trusts personal injury law firm Palatine employment lawyer license reinstatement clemency Illinois attorney reckless homicide gift tax exemption, estate planning, estate planning strategies, Illinois estate planning, South Barrington estate planning attorneys Buffalo Grove personal injury attorney real estate attorneys surgical mistakes college kids Illinois traffic attorneys DGAA irrevocable trust Illinois employment law attorneys how to avoid common denials of life insurance claims Super Mario dealing with problem employees Illinois traffic ticket lawyer wrongful termination Des Plaines personal injury attorney probate Palatine law firm Illinois Trust Code texting and driving wage theft Kenilworth estate planning lawyer Illinois pedestrian accident attorney texting while driving Arlington Heights TBI attorney caregiver back injuries Barrington litigation attorney fiduciary rule delay cell phone Illinois Workers’ Compensation Commission Chicago employment attorney most common reasons for life insurance claim denials Rolling Meadows criminal attorney installment contracts Fourth of July Palatine probate lawyer Mount Prospect elder law attorney Buffalo Grove law firm medical malpractice claims car crashes Arlington Heights Traffic Lawyer Illinois estate planning Schaumburg criminal attorney estate planning attorney insurance agent negligence Arlington Heights wills and trusts attorneys Do Not Resuscitate Crystal Lake accident attorney business litigation creditors Jay Andrew murder charges Illinois workers compensation attorney Deer Park motorcycle accident lawyer personal injury attorney hiring employees insurance claims Crystal Lake traffic attorney medical malpractice, missed diagnosis, delayed diagnosis, medical mistake, Deer Creek medical malpractice lawyers Home Remodeling Repair Act Chicago estate planning Illinois workers compensation lawyer BAIID Inverness DUI lawyer premises liability bicycle dooring accidents life insurance claims attorney fees Illinois estate planning law firm investment property employment law, meal breaks, rest breaks, hotel employees, Des Plaines employment law attorneys Illinois Sales Representative Act capital gains tax Palatine Attorney Schaumburg estate planning lawyer Self-Directed IRA Accounts unpaid assessment Des Plaines personal injury lawyer head on collisions rollover car crashes traffic tickets Palatine corporate attorney preventable medical errors Rolling Meadows drug defense attorney Chicago lawyer vacation home fines Chicago traffic lawyer Rolling Meadows probate lawyer elder abuse car crash injuries commercial leasing Illinois real estate lawyer Chicago insurance law firm real estate closing Illinois corporate lawyer Illinois business lawyer probate fees Barrington real estate lawyer Arlington Heights wills and trusts attorney privacy laws Exclusions Landlord Tenant Ordinance Arlington Heights criminal lawyer Deer Park personal injury lawyer Policy Cancellation Schaumburg life insurance attorney Crystal Lake traffic lawyer Barrington employment law firm Barrington Illinois estate planning lawyer loopholes health insurance dispute insurance dispute Inverness traffic law firm Illinois law School Visitation Rights Act Fair Labor Standards Act Crystal Lake criminal defense attorney civil rights violation Palatine civil attorney Long Grove real estate lawyer medical malpractice compensation Whistleblower Claims medical research anesthesia errors elder law Des Plaines injury law firm denied insurance claims speeding Des Plaines drug lawyer insurance negligence federal crimes liens Illinois trusts attorney employment law Illinois Transfer on Death Instrument insurance disputes, Illinois insurance disputes, Illinois insurance dispute attorneys, denied insurance claims, Arlington Heights insurance dispute attorneys probate claims Illinois pet lawyer meal breaks Illinois elder law attorney Arlington Heights personal injury lawyer Des Plaines DUI attorney Crystal Lake employment law attorney estate plan Arlington Heights insurance attorney unfunded trust Colin Gilbert Crystal Lake personal injury lawyer Chicago employment lawyer small business Schaumburg employment law attorneys Arlington Heights trucking lawyer pedestrian accident underage DUI Employment Discrimination Law GM ignition switches Crystal Lake employment lawyer traffic offenses South Barrington real estate lawyer Schaumburg elder law lawyer institutional trustee probate claims process Arlington Heights car accident lawyer Chicago attorney Illinois personal injury lawyers work unions Illinois employment law in terrorem provision Illinois medical malpractice claim Barrington personal injury lawyer employment attorney Illinois employee rights attorney. Palatine trusts lawyer Chicago insurance claim attorneys Palatine civil litigation lawyer Palatine traffic lawyer trauma after an accident Illinois mortgages Illinois red light cameras Rolling Meadows Crystal Lake insurance lawyer privacy auto accidents spinal cord injury boating under the influence preventing accidents homestead rights condo Rolling Meadows personal injury lawyer natural gas car accident commercial real estate Buffalo Grove criminal defense lawyer swimming pools car accident lawyers appealing an insurance claim Palatine workers compensation lawyer Barrington civil litigation attorney Rolling Meadows traffic law firm Crystal Lake pet attorney car accident lawyer Des Plaines criminal attorney criminal llinois Real Estate Lawyers Association Attorney Ken Apicella employee rights Barrington drug crime attorney wrongful termination, employment law, whistleblower protections, Illinois employment laws, discrimination in the workplace drug possession Rolling Meadows litigation lawyer