The ‘Pay if Paid’ Vanishing Act in Commercial Construction Contracts
Subcontractors: A single contract clause can make your right to be paid for your work disappear.
And here’s a secret: There’s a really good chance this clause is in yours.
In Ohio (and many other states), a contract may state that your right to be paid for your work depends on your customer receiving payment. It’s called a “Pay if Paid” clause.
Here’s how the clause works in the real world.
Imagine a General Contractor hires you to perform $150,000 worth of demolition work during the first two months of a commercial renovation project.
You complete the job. Then the Owner closes its doors, loses its financing, or has the job shut down by the government.
If your customer (the General Contractor) doesn’t get paid by the Owner…
…and there’s a Pay if Paid clause in your subcontract…
…you have no right to that $150,000.
A pay-if-paid clause typically states:
“Subcontractor agrees that Contractor’s receipt of payment for Subcontractor’s Work is a condition precedent to Subcontractor’s right to payment for the Work. Subcontractor assumes the risk of nonpayment by the Owner for any reason.”
Language like this lives in many subcontract forms in Ohio.
Subcontractors often just accept this language because they believe their customer won’t negotiate.
However, there are several alternatives to a Pay if Paid clause that won’t leave you entirely at the mercy of whether or not the project Owner pays your customer. (Including ones that still provide your customer with a reasonable level of protection.)
But if you don’t try asking for fairer language, you won’t get it.
If you’d like help with your commercial construction contract, fill out our contact us form. Reference this article and you’ll get a complimentary consultation with one of our legal team members. You can also find more related information in our Guide to Avoiding Commercial Construction Contract Nightmares.
