Court Refuses to Enforce Pay-lf-Paid Provision

摘要

PAY-IF-PAID provisions in con-struction contracts shift the risk of owner default from the contractor to the subcontractor. They do so by making the contractor's payment to the subcontractor contingent upon the contractor being paid by the owner. These provisions are disfavored for their harshness because they push the risk of nonpayment downstream to the parties least likely to withstand the financial consequences. Because of this, many jurisdictions have enacted legislation voiding such clauses as against public policy. In jurisdictions in which the clauses are not outright void, courts are eager to limit their effect. One way courts do this is by interpreting an intended pay-if-paid provision as a pay-when-paid clause. The difference is significant.