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


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