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

Archive