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

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

Archive