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

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

Archive