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


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