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Construction Programs & Results Inc

We Like to See The Good Guys Win!

"Pay If Paid" or "Pay When Paid" Agreements

by Michael Stone

I read an article written by Kent Lang, who is a practicing attorney in Arizona. His article dealt with pay when paid (or pay if paid) clauses in contracts, specifically between general contractors and sub contractors. Mr. Lang has a very nice writing style, gets right to the meat of the matter and is easily understood.

Bottom line is that you must be very careful if you use these clauses in your contracts because, in his words, "Courts do not like these provisions and will try very hard to find a reason to invalidate them."

We hear about these clauses frequently from subcontractors. Fortunately most of them, now, when they see this provision in a contract, refuse to get involved.

That's my advice – don't get involved. If you're a subcontractor you can take it a step further and tell the general contractor that they shouldn't have a project where the owner sets the payment schedule. These are jobs to be walked away from. If you desperately need the job so badly that you would sign anything to get the job, it's time to make other changes in your business.

You are not a bank or lender. Don't get in the business of financing other jobs, and don't let others set your payment schedule.

Comments

I like it! I have been put in the position on both sides of this type of dealing. Its just not a good way to do business. And you are right, it comes down, most often to the owner sets the schedule. Well, as you clearly know, really is, its tough to live by said "schedule" when subs are coming and going. Thanks for visiting this issue! Dave

"Pay if Paid" is, in my opinion, absolutely ridiculous...I would never even think about disrespecting my subs like that (paying them only if and when I get paid). I don't know of any contractor who would agree to be paid by his client when and if his client gets a paycheck at his or her job that week. So why should a sub have to wait for his or her check? If they do the job they were hired to do then I pay them.

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