Contractor’s delay of more than 90 days to pay subcontractor was per se unreasonable and the pay-when-paid clause was unenforceable to hold up payment.  Subcontractor was entitled to recover attorneys fees incurred in litigating against the Contractor to recover what was due.  In this case the contractor didn’t contest that the subcontractor performed the work and was entitled to payment.  But because the project owner had not released final payment to the Contractor for the work, Contractor argued that it was entitled to enforce the pay-when-paid provision of the contract.  In order not to forfeit its right to file a mechanics lien, the subcontractor filed suit when 90 days past due was approaching.  State statutory language applicable here expressly prohibits parties from conditioning payment to the subcontractor upon the owner’s payment to the general contractor and makes any agreement to the contrary unenforceable.  Because the GC here used the pay when paid provision to condition its payment to the Sub it attempted to make owner payment a condition precedent for payment to the Sub.  Such a condition precedent is unenforceable.  J&H Grading & Paving, Inc. v Clayton Construction Company, Inc., 441 S.C. 272 (2023).

The applicable state statue provides:

“Notwithstanding any other provision of law, performance by a construction subcontractor in accordance with the provisions of its contract entitles the subcontractor to payment from the party with whom it contracts. The payment by the owner to the contractor or the payment by the contractor to another subcontractor or supplier is not, in either case, a condition precedent for payment to the construction subcontractor. Any agreement to the contrary is not enforceable.”

The court stated that this statute expressly prohibits a general contractor from conditioning payment to the subcontractor upon payment to the general contractor.  Any agreement to do so is contrary to the statute and therefore unenforceable.  As further explained by the court:

“The record shows Clayton used this “pay when paid” provision to condition its payment to J&H upon its first receiving payment from Herlong. When J&H invoiced Clayton for final payment, Clayton relied upon the “pay when paid” provision and refused to pay because it had not yet received payment from Herlong. The clause therefore created a condition precedent for payment to J&H in violation of section 29-6-230. Thus, we find the circuit court did not err in concluding section 29-6-230 expressly prohibits parties from agreeing to condition payment to a subcontractor upon payment to the general contractor and therefore the “pay when paid” provision of the Subcontract was unenforceable.”

Risk Management Comment:

Not all states forbid the enforcement of a paid-if-paid clause.  When we review subcontracts where they may be enforceable we seek to add language requiring that in no event will the subcontractor be paid uncontested funds later than 90 days from invoice.  If the general contractor will not agree to that change, we recommend adding a clause to the payment provisions allowing the subcontractor to suspend its services until payment is received.  We use a clause such as the following:

“If payment of any undisputed amount due and owing to Subcontractor is not made within 45 days of submittal of the invoice for such amount, Subcontractor shall, upon seven (7) days written notice, be entitled to suspend its services until such payment is made.

This at least eliminates the possibility of the subcontractor having to continue performing further services without pay.


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 or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 26, No. 3 (March 2024).

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