Construction Law

The Paid-When-Paid Provision and Subcontractors

Subcontractors, it pays to thoroughly review your subcontracts to secure your best interest especially where getting paid for the work you’ve done is concerned. The provision that can affect your cash flow is the Paid-When-Paid provision. If an owner and contractor are in conflict over payment, you can be certain that you will have an issue getting paid. This provision asserts that you are entitled to payment based on the condition that the contractor is paid by the owner.

How Can You Protect Yourself

Subcontractors can shift risk down to the sub-subcontractors they hire by incorporating the Paid-When-Paid provision into their contract. This means that if the contractor doesn’t pay the subcontractor, then the conditions of payment between the subcontractor and their own sub-subcontractor will be the same until proper payment is rendered. Naturally, you want to pay your own subs, but if your cash flow stops, you won’t be able to pay your subs anyway. Discuss your options with one of our reputable Miami construction lawyers as soon as possible.

What Do the Courts Say?

The courts will determine if the provision is valid and enforceable or invalid and unenforceable. The element that determines whether the provision is enforceable is based on whether the courts deem the provision to be clear and unambiguous. If the courts consider the provision invalid, the contractor will not be obligated to pay the subcontractor until the owner pays the contractor.

How to Make the Provision Enforceable?

The language you use in your contracts is critical. Typically subcontractors should try to avoid these clauses, however, that may not always be possible. At the very least, you can request that a payment is made within a reasonable timeframe, like 30 days for example. Likewise, you will need to ensure the language in the subcontract clearly reflects that the payment will be made to your sub-subcontractor upon receipt of payment from the contractor. For assistance, we recommend you have a Miami construction lawyer review and revise your existing subcontract.

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Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.