Contingent Payment Clauses Strike Again!
In Holding the Surety’s Feet to the Fire – Recent Cases Confirm Subcontractor’s Rights to Maintain Miller Act and Little Miller Act Suits Despite Subcontract Pay-If-Paid Clauses and Prime Contract Dispute Procedures, author Brian S. Wood discussed recent cases where the subcontractor prevailed, even though the subcontract included a pay-if-paid clause.
Wood states that, although most subcontractors typically understand their bond claim rights, contingent payment clauses still cause confusion.
“One common area of confusion is whether pay-if-paid or pay-when-paid clauses in subcontracts prevent the subcontractor from suing on the payment bond if the contractor has not been paid. If not precluded altogether, must the suit under the bond be stayed pending the satisfaction of the conditions of payment?”
I encourage you to read his article in full to learn more about the two cases, one in Maryland & one in Washington D.C., and to observe how the subcontractor prevailed in each.
It’s important for subcontractors, or any potential claimant, to not automatically back down from a claim based on a contingent payment clause. Wood advises that subcontractors can put pressure on non-paying parties.
“One practical effect of these rulings is that subcontractors can apply pressure against nonpaying general contractors by maintaining actions against their sureties, despite the existence of a pay-if-paid clause and/or claims and disputes procedures in the prime contract. To maximize this pressure, subcontractors may wish to consider suing sureties separately, unless local laws or rules demand that the contractor and surety be joined in the same action. Such separate suit may help prevent a court from extending the contractor’s pay-if-paid defense to the claims against the surety.”
Of course, don’t simply assume you can take additional action. As always, it’s best to seek a legal opinion on your specific situation.
Check out our latest flip book to learn more about “if” and “when” payment clauses! You can download the flipbook here.
Upcoming Educational Opportunities
- 8/1/17 @ 1:00 pm: Understanding the Mechanic’s Lien Process for States with Notices of Non-Payment
- 8/8/17 @ 1:00 pm: Collateral, UCC Proceeds, Commingled Goods and Accessions
- 8/15/17 @ 1:00 pm: Keeping Your Money: a Creditor’s Guide to Defending Preference Actions
- 8/22/17 @ 1:00 pm: Lien Foreclosure
- 8/29/17 @ 1:00pm: Secured Transactions in the U.S. and Canada
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