Where a subcontract clause stated that the subcontractor agreed that the prime would not be responsible to make any payment to the Sub “unless and until [Prime] receives payment … from Owner of the project,” a Missouri appellate court found that the language was clear and unambiguous in establishing owner payment as a condition precedent to any duty of the prime contractor to make payment to the subcontractor. The clause in question had been revised by negotiation to include, “If Subcontractor is not paid within 45 days of when a pay application is submitted, Subcontractor may stop the Work of this Subcontract until payment is received.”   The court found that time-period language did not conflict with condition precedent but rather just eased the burden on the subcontractor by allowing it to stop work on the project entirely if payment was not forthcoming within 45 days. “Rather than being contradictory or ambiguous [the] paragraph logically distributes financial risk between the parties and provides both a measure of financial protection.” This court frames the issue in the more standard terminology of “pay-when-paid” as contrasted with “pay-if-paid.” A. Zahner Company v. McGowan Builders, Inc., 497 S.W.3d 779 (Missouri 2016).

Comment: Note the different result that would be attained by stating the subcontractor could cease in 45 days if payment were not made, as compared to instead stating that in no event would payment be made later than 45 days.


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 19, No. 5 (May 2017).

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