Webinar: Understanding Pay If Paid Clauses in the Construction Industry

892 views

Published on

Accompanying Webinar: http://hub.zlien.com/pay-if-paid-clauses

Contingent payment provisions have plagued subcontractors and suppliers for over 5 decades. These provisions, commonly referred to as "pay when paid" or "pay if paid" clauses, come in many different formats. One thing is consistent, though: They complicate and delay the payment process.

So, how does your company deal with them? Does your company even truly understand them?

These provisions are more complicated than they may first seem. This presentation traces the history of these provisions, and guides general contractors, subcontractors, suppliers, and others, on how they should approach these clauses to best position their company for success.

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
892
On SlideShare
0
From Embeds
0
Number of Embeds
443
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Webinar: Understanding Pay If Paid Clauses in the Construction Industry

  1. 1. Pay If Paid / Pay When Paid
  2. 2. Every Wednesday
 1pm CST Construction Credit Knowledge SIGNUP FREE
  3. 3. PAY WHEN PAID PAY IF PAID JOINT CHECK AGREEMENTS BANKRUPTCIES DELAY DISPUTES & DAMAGES WORKMANSHIP DISPUTES CHANGE ORDERS SCOPE OF WORK ISSUES CODE INSPECTION VIOLATIONS PREVAILING WAGES There are a lot 
 of reasons why
 getting paid is tough 
 in your industry
  4. 4. America believes that trade contractors and suppliers should get paid
  5. 5. America believes that GCs and Developers Should Burden a Project’s Financial Risk
  6. 6. Mechanics lien laws provide contractors remedy in event of non-payment Contracts start to include “no lien clauses.” Courts void these provisions as anti-public policy Contracts start to include “pay when paid” clauses. Courts say this is only a “timing” clause “Pay when paid” turns into “pay if paid.” Many courts declaring this void as against public policy. Notice Claim Provisions now appearing in contracts with strict claim periods. 1791 40’s 60’s 80’s 2000
  7. 7. Mechanics Lien Rights ! Payment bond requirements ! Contractor license bonds (i.e. WA) ! Misappropriation of funds laws and criminal statutes ! Contractor payment timing laws Laws Protecting Subcontractors & Suppliers
  8. 8. Mechanics Lien Rights ! Payment bond requirements ! Contractor license bonds (i.e. WA) ! Misappropriation of funds laws and criminal statutes ! Contractor payment timing laws Laws Protecting Subcontractors & Suppliers No Lien Clauses ! Pay When Paid Clause ! Pay If Paid Clause ! Notice Claim Provisions ! Retainage Requirements Owners / GCs Attempt To Shift Risk With Contract
  9. 9. Mechanics Lien Rights !Payment bond requirements !Contractor license bonds (i.e. WA) !Misappropriation of funds laws and criminal statutes !Contractor payment timing laws Laws Protecting Subcontractors & Suppliers No Lien Clauses !Pay When Paid Clause !Pay If Paid Clause !Notice Claim Provisions !Retainage Requirements Owners / GCs Attempt To Shift Risk With Contract Judges (usually) tip the scales back to subs & suppliers
  10. 10. Pay When Paid Clauses Begin to Appear in Contracts in the ‘60s This was a move by GC’s and Property Owners to attempt to shift the financial risk to subs. This continued the battle between two deeply rooted American interests: 
 1. mechanics lien rights (the desire for people to get paid for the work they do); &
 
 2. freedom of contract (the desire to let parties decide for themselves).
  11. 11. These provisions were generally interpreted by the courts as a “timing mechanism” ! That is, they allowed the GCs to wait for a “reasonable period of time” to receive payment before they were obligated to pay the subs - BUT they were not absolved of that responsibility altogether. But…THEY STILL HAD TO PAY
  12. 12. GCs and Owners didn’t take that lying down, so Pay When Paid became Pay IF Paid.
  13. 13. Many states responded to this new provision by declaring Pay If Paid Clauses Void As “Against Public Policy” The desire for parties lower on the ladder to get paid what they have earned is strong. The following states (in green) have “outlawed” Pay If Paid clauses:
  14. 14. And, in most of the remaining states - Pay If Paid clauses are looked upon with disfavor by courts, and require technically precise language in order to be effective.
  15. 15. This wording is generally required to be specific, and unambiguous. This means including language like: ! “condition precedent to payment” or “explicitly agrees that this provision is meant to shift the risk of non- payment”
  16. 16. So, What Does This Really Mean? I have great news for general contractors: the old adage that possession is 9/10ths of the law is true. If you hold the money, you have a lot of leverage.
  17. 17. 3 Points For General Contractors: • Don’t be greedy.  If you hold the money you have a lot of leverage, but that leverage can easily flip in favor of the subcontractors if you abuse it. If the state law clearly interprets pay-if-paid clauses as invalid, start thinking about how you can pay the subcontractor. 
 • Don’t Try To Make Law:  If you are in a state that doesn’t have clear law about your contract provision, it’s probably a bad idea to be the company to make the law. 
 • If You’re Right, You’re Right: Pay-if-paid clauses are not dead. There are many jurisdictions that will entertain them. Beware of a state reversing course for policy reasons (see, for example, recent Ohio decision), but feel free to stick to your guns and require the subcontractor to wait...forever, if needed...if you have the contract provision and the accompanying law to protect you.  However, do not foreclose on the idea that a settlement with the subcontractor may be a fiscal and frustration-responsible option.

  18. 18. Now I have great news for subcontractors: You have good odds of eventually beating the general contractor.  It just may be very, very expensive. So, What Does This Really Mean?
  19. 19. 2 Points for Subs: • Pay-If-Paid Clauses Are Strictly Construed In Your Favor:  Usually, this means that they will be pretty benign and allow you to collect even if the general contractor is never paid.
 • Don’t Get Greedy:  The GCs were warned to not get greedy by relying too much on their pay-if-paid clause, which may eventually be overturned. Similarly, subcontractors should not get greedy and try to shoot for the moon in damages if the general contractor abused the contract a bit by holding the money for too long. Indeed, many state laws will award subcontractors damages and penalties if a GC misbehaves, but getting into this fight is probably going to be more difficult than you or your lawyers predict.
  20. 20. How Will Your State Interpret It? 50 STATE GUIDE To Pay When Paid & Pay If Paid Clauses FREE GUIDE
  21. 21. Finally, A Platform That Fixes Liens. Forget About Notices Forever Technology Driven Deadline Knowledge & Policy Insight Legal Integrity GET A DEMO

×