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

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

Archive