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.


Recent Posts


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