Determining who shoulders the burden of payment on a construction project can be tricky when clauses and provisions can shift responsibility from one party to another. When a subcontractor is facing nonpayment, it’s crucial to know exactly what these clauses are. The “pay when paid” clause is one of the most common of these contract provisions. In this article, the Denver contractor attorneys at Cotney Construction Law will detail the viability of “pay when paid” clauses in Colorado. Remember, a Denver contractor attorney can always assist you when repayment is sought on a construction project.
What Is “Pay When Paid”?
The “pay when paid” clause is a timing mechanism that ensures a subcontractor will be paid regardless of the owner’s payment schedule. Under this clause, a contractor must pay a subcontractor if the owner has paid; moreover, the contractor is still required to pay a subcontractor even if the owner has not paid. This clause refers to the timing of payment and does not absolve a contractor from paying a subcontractor.
Similar to the above provision is the “pay if paid” clause. We’ve previously covered the differences between “pay when paid” and “pay if paid” clauses, but “pay if paid” means that a contractor is not obligated to pay a subcontractor even if the owner does not pay. Both clauses can have drastic implications for a subcontractor. So how do they hold up in the State of Colorado?
Does It Hold Up?
The viability of “pay when paid” clauses varies from state to state. The State of Colorado has ruled that “pay when paid” clauses are valid. A contractor cannot withhold payment and must pay the subcontractor within a reasonable amount of time. The courts view “pay if paid” clauses as viable if the contract clearly states that the burden of payment is on the subcontractor and not the contractor.
While these contract provisions may not seem all that different when they are sitting on the page in front of you, they can mean a world of difference to an unpaid subcontractor. If you are looking to renegotiate or enforce the above contract provisions, please consult with a Denver contractor lawyer before moving forward.
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.