What is a Paid-if-paid Clause?
Hi, I’m Mark Bogard, I’m a construction law attorney with the law firm Jaburg Wilk.
What is a “Pay-if-paid” Clause?
A “pay-if-paid” clause is a condition precedent, at least those are the fancy words that we give it in the courtroom. A condition precedent is simply a condition or something that must occur before something else can happen. In a “pay-if-paid” or a “pay-when-paid” clause situation, we typically see those in construction contracts where for example, a general contractor may have in his subcontract agreement a provision that says the subcontractor agrees that he or she cannot receive payment until the general contractor has received payment from the owner. That is a condition precedent because again, the subcontractor cannot be paid until the general contractor has received payment.
Are “Pay-if-paid” and “Pay-when-paid” Contract Clauses Enforceable in Arizona?
They can be enforceable. They have to be carefully drafted and they also can be subject to the particular facts of the case as to whether or not they will be ultimately deemed enforceable by the Court. There is also some question given some recent developments or relatively recent developments in statutory law. Our last case law on “pay-if-paid” “pay-when-paid” is nearing twenty years old and since that time we’ve had, for example, the Arizona Prompt Pay Statute that’s been created and amended that arguably has made the enforcement of a “pay-if-paid” or “pay-when-paid” clause unenforceable or at least harder to enforce. It’s a technical issue that requires a specific review of the particular facts at issue but our current case law as it currently stands says that a “pay-if-paid” “pay-when-paid” clause may be enforceable.
About the author: Mark Bogard is a construction law attorney at the Phoenix law firm of Jaburg Wilk. For nearly 20 years he has assisted suppliers, contractors, owners/developers, lenders and registered professionals in virtually all areas of construction law, including payment remedies such as mechanics’ liens, payment bonds, stop notices, and “prompt pay” on private and public projects.