Contingent Payment Clauses
Contingent payment clauses or “no pay until paid” clauses can have a devastating effect when they exist in a contract between a general or prime contractor and the subcontractor. The clause operates to interfere with a subcontractor’s ability to claim that payment is due. According to a standard contingent payment clause, if a general or prime contractor has not received payment from the construction owner, then the subcontractor is not entitled to be paid. In most states, contingent payment clauses will be enforced. However, there is a growing number of states that either prohibit or discourage their enforcement. Conditional payment clauses are controversial and have met with varying degrees of success in the courts.
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Pay-if-paid and pay-when-paid clauses enforce if contract unequivocally states that the subcontractor will be paid only if the general contractor is first paid by the owner, thus clearly shifting the risk of non-payment to the subcontractor. Main Elec., Ltd. v. Printz Servs. Corp., 980 P.2d 522 (Colo. 1999).