Licensed Image from Bulkimport/Photodisc/Thinkstock
Licensed Image from Bulkimport/Photodisc/Thinkstock

Who bears the risk when an owner refuses to pay the general contractor or experiences financial failure?  More than likely, the subcontractors whose agreements include a contingent payment clause.  Two types of payment clauses exist and both are enforceable.  “Pay-when-Paid” clauses and “Pay-if-Paid.”  Pay-when-paid clauses allow the general contractor to wait a reasonable time for the owner to pay before paying the subcontractor.  Pay-if-paid clauses shift the risk of non-payment completely to the subcontractor.  Stated another way, a pay-if-paid clause makes the general contractor’s duty to pay the subcontractor absolutely conditional upon receiving the owner’s payment. 
Continue Reading