Pay-When-Paid and Pay-If-Paid Provisions

Alex BarthetBonds, Contracts, Getting Paid, Videos

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Pay-when-paid (or pay-if-paid) contract provisions exists in almost every construction contract that comes across my desk, and it probably exists in almost every contract that you sign. So let’s define what it is. A pay-when-paid provision is a contract provision that shifts the risk of nonpayment from one party to another. As an example, with such a provision in place, if the owner doesn’t pay the contractor, the contractor doesn’t have to pay you. This is a legal defense to payment. It’s valid and enforceable in Florida and it’s important that you understand if the contract you are signing has a pay-when-paid provision, you may not get paid.

Once you determine that your contract has a pay-when-paid provision, the next question is, what do you do about it? First, you need to determine if it’s enforceable. In Florida, pay-when-paid provisions are enforceable if they include certain language. Generally it’s the inclusion of certain words such as, “condition precedent” or “contingent upon”. If those phrases exist in the pay-when-paid provision, more often than not, that pay-when-paid provision will be found valid and enforceable. Meaning, if the owner doesn’t pay the contractor, the contractor may not have to pay you.

Once you determine that you have a valid and enforceable pay-when-paid provision in your contract, there are four things you can do to try and overcome it.

1. Strike the provision.

Unfortunately in this economic climate, it will be very difficult to do so. However, you may be able to strike some of the language which may render the provision unenforceable in its entirety.

2. Take a look at the prime contract.

Most prime contracts are incorporated into your subcontract or sub-subcontract. If so, the prime contract may contain provisions that if incorporated into your contract, will void an otherwise valid and enforceable pay-when-paid provision.

3. Next, see if the job has a bond.

If the contractor posted a performance and payment bond on your job, even if you have a valid and enforceable pay-when-paid provision in your contract, you may be able to make a claim against the contractor’s payment bond.

4. Finally,

Even if you have a pay-when-paid provision in your contract, your lien rights may have survived and still be intact. That is the avenue you want to exploit in order to get paid.

While you may not be able to overcome a pay-when-paid provision in your contract, it’s important at least to understand the associated risks so that you can make a better business decision going forward.