In an article published on May 31, 2022 in Construction Dive, Judd Lifschitz discusses the new contract language which goes into effect next year putting the responsibility on contractors to pay subcontractors even when owners default.
In the article, Lifschitz explains that while the language may not seem fair for subcontractors who have no control over the dealings between a prime and the owner, “in many jurisdictions, it’s absolutely enforceable.” He adds, that “if you’re not in this industry, pay-if-paid might seem a little bit shocking, even draconian.”
Lifschitz also mentions that subcontractors usually try to avoid pay-if-paid clauses in contracts for that reason. But they may feel compelled to accept them in situations where they don’t have leverage, or during periods when work is scarce.
“Most sophisticated subcontractors know better, and they wouldn’t sign a subcontract with a pay-if-paid clause,” said Lifschitz. “But when economic times are tough and people need the work, some subcontractors will sign what they need to sign to survive.”
To read the full article, you may click here.