It is customary for general contractors to include pay when paid clauses in their contracts, attempting to limit any requirement on their part to pay their subcontractors until they’ve received payment from the project’s owner. As a result, there have been a number of suits filed by subcontractors against general contractors for payments due on completed work. Can general contractors refuse to pay their subs because they have not yet received payment from their owners?
A recent case has followed a Supreme Court of Florida decision rendered in 1997 and acknowledged the right of parties to shift the risk of payment failure by an owner to a subcontractor. But the Court also recognized the majority rule in this country that payment by the owner to the general contractor is not a de facto condition precedent to the general contractor’s duty to pay its subs.
Is Payment Due Now, Later or Not At All?
If a “pay when paid” provision is clear, the general contractor can make payment to his subs contingent on receipt of payment from the owner. However, if the language is susceptible to different meanings then, it must be interpreted as setting a reasonable time for the general contractor to pay. The burden for clear expression is on the general contractor.
In one case, decided against the general contractor, the Court found a provision stating “payment to the subcontractor would be made within 7 business days after receipt of payment from the owner” was unclear and ambiguous. Therefore, it did not shift the risk of payment to the subcontractor, but rather required that the general contractor pay his subs within a reasonable time.