Where a general contractor failed to pay its subcontractor and used the pay-if-paid clause of the subcontract as the reason for not making payment, the Supreme Court of Nevada held that the contract provision was not per se void and unenforceable in light of the state’s Prompt Payment Act; but must instead be reviewed on a case-by-case basis. Here, the court held that the pay-if-paid provision was not enforceable because it limited the sub’s rights under the Prompt Payment Act. Apco Construction, v. Zitting Bros. Construction, 473 P.3d 1021 (2020).
The decision cites earlier case law for the principles that pay-if-paid clauses are generally unenforceable, but can be enforceable in limited circumstances subject to certain restrictions. Most specifically, the court held the following:
“Such provisions are unenforceable if they require subcontractors to waive or limit rights provided under NRS 624.624-.630, relieve general contractors of their obligations or liabilities under NRS 624.624-.630, or require subcontractors to waive their rights to damages, as further outlined under NRS 624.628(3). Because provisions in the subcontract considered here condition payment on the general contractor receiving payment first and require the respondent subcontractor to forgo its right to prompt payment under NRS 624.624 when payment would otherwise be due, such provisions are void under NRS 624.628(3) and cannot be relied upon by appellant general contractor for its nonpayment to respondent for work performed. Furthermore, because appellant’s evidence in support of its other conditions-precedent defenses is precluded and the plain language of NRS 108.239(12) permits a subcontractor to sue a contractor for unpaid lien amounts, we affirm the district court’s grant of summary judgment and award of attorney fees and costs in favor of respondent.”
After going further in analyzing the facts and the law, the Supreme Court concluded that the pay-if-paid provisions in this subcontract were unenforceable because they limited the sub’s rights to prompt payment as required under the state law. “Accordingly, such pay-if-paid provisions limit Zitting’s right to prompt payment under NRS 624.624(1) and limit Zitting’s recourse to a mechanics’ lien. We therefore hold that the pay-if-paid provisions in the parties’ subcontract are void and unenforceable under NRS 624.628(3)(a).”
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 ConstructionRisk 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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 23, No. 1 (Jan 2021).
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