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

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

Archive