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


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