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

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

Archive