A bill recently introduced by the Tennessee Senate could drastically alter how payments are withheld, received, and fought for on future construction projects. While this bill, Senate Bill 324(HB271), is currently deferred until 2020, it’s nevertheless important to discuss how it could affect project owners, general contractors, subcontractors, and suppliers.
In this three-part article, a Chattanooga contractor attorney at Cotney Construction Law will be discussing the potential ramifications of this bill. In this part, we will discuss “pay-if-paid” clauses. We will cover notices and retainage laws in parts two and three, respectively. For any questions regarding how to secure payment on a construction project, consult with one of our Chattanooga contractor attorneys.
Contingent Payment Clauses
A pay-if-paid clause in a construction contract stipulates that a contractor does not have to pay a subcontractor under them until receipt of payment from the owner. The purpose of this clause is to shift the financial risk of a project away from contractors. However, subcontractors believe that under these provisions they are unduly financing a project and that responsibility should fall on the owner to pay for any labor and materials supplied.
As we’ve covered previously, when payment stalls on a project, it can cause a ripple effect that impacts every party down the line and potentially leads to bankruptcy. Contractors, subcontractors, and suppliers regularly invest large sums of money into a project and may face bankruptcy if they don’t receive payment.
Consult an Attorney
The invalidation of contingent payment clauses benefits subcontractors while potentially taxing contractors that may already be stretched thin on construction projects. As we’ve seen here, Tennessee construction law is a constantly changing landscape, and there’s no telling what the final version of this bill may look like. Keep a Chattanooga contractor attorney on retainer to ensure that your construction contracts are always current on all Tennessee laws.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.