LEGAL MATTERS
What’s in a word? “Pay-if-Paid” or “Pay-When-Paid” provisions—there may be a big difference Jeffrey W. King Outside General Counsel for the WFCA Jeffrey King has more than 35 years’ experience in complex litigation with a focus on contracts, employment, construction, antitrust, intellectual property and health care. He serves as general counsel for WFCA and other trade associations, and is a LEED Accredited Professional. For more information, contact him at (561) 278-0035 or jeffw@jkingesq.com.
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ave you ever signed a contract to supply or install flooring that provided you are paid “if ” or “when” the prime contractor is paid? Do you include such provisions in your contracts with installers? These provisions are generally understood to shift the risk of an owner not paying from the prime contractor to the subcontractor. The fact, however, is that there may be a significant difference between a paid-when-paid and a paid-if-paid clause. The courts in most states consider a “pay-when-paid” clause as simply a timing mechanism, and generally will not excuse the prime contractor from paying the subcontractor, whether or not the owner pays the prime contractor. The risk of non-payment is on the prime contractor, and the courts will generally require payment to the subcontractor within a “reasonable time” after the work is completed. In contrast, courts generally have found that a “pay-if-paid” clause constitutes a condition precedent to the subcontractor’s payment. A pay-if-paid provision means exactly what it says: The prime contractor has no obligation to pay subcontractors unless the owner first pays the prime contractor. This can create a dilemma for a subcontractor. Since the subcontractor has no contract with the owner, a court will generally hold that the subcontractor cannot claim a breach of contract against the owner. Some courts have held the subcontractor’s sole remedy is against the prime contractor, who is not obligated to pay until the owner pays it. This distinction recently took center stage in a case in Kentucky. The dispute involved the construction of a 21-floor luxury condominium. The owner hired Corporex Development to design and oversee construction of the condominiums, and Cortex contracted with Dugan & Meyers Construction (“D&M”) to be the general contractor, who would manage the construction of the condominiums. D&H subcontracted with Superior Steel, Inc. to fabricate and install the steel framing and decking for the fixed price of $1,814,000. Superior, in turn, subcontracted with Ben Hur Construction to erect the steel framing and metal decking for the fixed price of $444,000.
18 Premier Flooring Retailer | Q2 2018
