March 03, 2015 Practice Points

“Pay If Paid” Not Easily Waived

A recent court decision announced that these clauses cannot be waived unless the evidence is so “clear and unmistakable” as to “exclude any other reasonable explanation”

by R. Daniel Douglass and Walter L. Booth Jr.

Pay-if-paid clauses in construction contracts are intended to shift the risk of owner nonpayment for a subcontractor’s work to the subcontractor, so that the general contractor is not obligated to pay if he is not paid by the owner. These clauses are enforceable in some states and not in others. In Georgia, a clearly drafted clause is enforceable. However, a recent court decision went further and announced that such a clause cannot be waived unless the evidence is so “clear and unmistakable” as to “exclude any other reasonable explanation”. Vratsinas Construction Co. v. Triad Drywall, LLC, 321 Ga. App. 451, 739 S.E.2d 493 (2013).

The case involved a drywall subcontractor’s payment claim against the general contractor on a shopping center construction project. The subcontract contained a pay-if-paid provision that payments were “expressly and unequivocally contingent upon … receipt of payment from Owner for the Subcontract Work.” It also provided that the subcontractor “expressly acknowledges that it relies on payment under the Subcontract on the creditworthiness of Owner, and not that of Contractor,” and the owner’s acceptance of the work and payment to the general contractor (GC) were “express, independent conditions precedent to any obligation” of the GC to pay the subcontractor.

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