DGAA bLAWg

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.


Sources:
https://www.constructconnect.com/blog/construction-law/legally-speaking-construction-contracts-pay-if-paid-pay-when-paid-clauses/
http://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=077000600K21
https://www.natlawreview.com/article/construction-group-news-extremely-clear-pay-if-paid-clause-enforced


Recent Posts


Tags

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

Archive