Pay When Paid and Pay if Paid Clauses: Who Bears the Risk of Non-Payment?

Explore the controversies, issues, and legal rights and remedies surrounding pay when paid and pay if paid clauses.

The enforceability of a pay if paid clause in a subcontract can be the difference between whether a contractor or its subcontractor remains in business in the event of an owner's failure to pay for a construction project. Pay if paid clauses are two of the most misunderstood, controversial, and contentious terms commonly included and negotiated in subcontracts. Contractors, subcontractors, and even some legislatures and courts have split as to whether pay if paid clauses are a fair allocation of the risk of an owner's nonpayment. This topic will explore the controversies and issues surrounding conditional payment provisions. This information will help persons responsible for drafting and negotiating construction subcontracts, including contract administrators, project executives, project managers, superintendents, and attorneys to recognize pay when paid and pay if paid clauses, to understand the requirements for enforcing such clauses, and to negotiate for the inclusion, exclusion, or modification of such clauses to better address the risk of an owner's nonpayment. It will help persons who administer and enforce construction subcontracts to better understand their rights and options in the event of a dispute involving a conditional payment provision and is critical to those who need to know and understand their rights and obligations under construction subcontracts.

Learning Objectives

• You will be able to recognize ways to defeat or avoid pay when paid and pay if paid clauses.
• You will be able to explain the legal issues that relate to pay if paid clauses.
• You will be able to identify the differences between pay when paid and pay if paid clauses.
• You will be able to define conditional payment provisions.