You told the guy to do the work, the work is done, and now it’s time for payment, right? But, you only told the guy to do the work because somebody else told you do the work and that somebody else now won’t pay. This is, perhaps, the most frequent problem in construction.
Here is the short story of an Owner, GC, and Sub on a public building project in Virginia. During the project, changes were made (imagine that on a construction project). The Sub completed the changes and its scope of work three months later than planned. The Sub submitted Change Requests to the Owner through the GC. The Owner denied the Sub’s Change Requests and did not pay the GC for the delays and changed work. In turn, the GC did not pay the Sub because the Owner did not pay the GC. The Sub sued the GC and lost because of valid pay-when-paid and pay-if-paid provisions in the subcontract.
In reading the court’s opinion (Young Electrical Contractors, Inc. v. Dustin Construction, Inc., Md. App. No. 266 (Dec. 28, 2016)), there are three lessons for general contractors:
- Ask Owners. You’ll have a better chance of enforcing a pay-when-paid or pay-if-paid subcontract provision when you submit subcontractors’ change requests to owners. It’s impossible to say that the owner said NO when the general contractor fails to ask. If you don’t submit a sub’s change requests to the owner, you (the general contractor) may bear the risk.
- Get Paid to Pay. Many words are wasted over whether a clause is a pay-when-paid vs. pay-if-paid provision. Yes, there is a distinction and it can make a difference. But, it’s generally enough to remember that under either clause, the owner will or must pay the general before the general will or must pay the subcontractor.
- Repeat Specifically. You’ll benefit from specific and repeated pay-when-paid or pay-if-paid provisions vs. a blanket or general provision. Insert conditional language (g., “if”) at each of three typical subcontract payment scenarios, including, payment for: (1) undisputed work, (2) disputed (i.e., changed) work, and (3) claims and disputes.
Differing Site Conditions: When the Part Does Not Equal the Whole
If all apples are fruit, then why are all fruit not apples?
Forum Selection Can Be a Home-Court Advantage
I promise that any disputes between us will be argued at your house. Time passes and a dispute begins to brew. Now, I want to argue at my house, not at yours. You pay costs to argue at my house that you wouldn’t have incurred had I done as agreed. Should I have to reimburse your costs?
No-Damage-for-Delay and Owner-Related Dispute Clauses are No Defense to Surety Liability Under Miller Act
Prime Government Contractors - you may need to update your interim payment waivers.
Contractual Fairness is Whatever the Parties’ Agreed
When you know a current action or inaction is wrong, but you do not object, should you be allowed to object later?
Which Comes First – Specifications or Drawings?
Sometimes it's not better to ask for forgiveness after-the-fact.
Government Contract Claims: When Appeal is Rejection of Settlement
Without a reservation of rights, appealing a Contracting Officer’s Final Decision is a rejection of any offer of payment or settlement included therein. So, the contractor had only three options.
Linking Obligations
If you want to bind the subcontractor to the prime in every way the same as the prime is bound to the owner, then the incorporation clause of the subcontract should be: . . .
Termination of Government Contracts for Convenience (T4C)
Imagine you’re a Government Contractor under a firm, fixed-price contract and you’ve done nothing wrong. Nevertheless, the Government has decided to unilaterally end its contract with you. Yes, the Government can do this...
Government Contractors: Build a Snowman in August
As a Government Contractor, when have you agreed to perform a certain way, but later realized that another way is better for everybody? When the Government agrees, expressly or impliedly, to the alternative performance, it waives a credit for the unperformed work.
