Does the Ohio Prompt Pay Act supersede a contract with a pay-if-paid clause that specifically states the General Contractors payment from the owner is a "condition precedent" to the General Contractor's obligation to pay Subcontractors?
Thank you.
1 reply
Oct 21, 2019
Based on the text of Ohio's prompt payment laws at Ohio Revised Code §4113.61, a pay if paid clause shouldn't be effective to delay payments. And, if payments aren't made in accordance with that section, serious interest penalties - 18% per year - may be available to a party being slow paid.
Prompt payment rules can't be waived on Ohio private projects
§ 126.30(D)(1) of Ohio's prompt payment statute reads: "No provision of this section regarding entitlement to interest, attorney fees, or court costs may be waived by agreement and any such term in any contract or agreement is void and unenforceable as against public policy." So, the right to interest cannot be blocked by a pay if paid clause in Ohio.
Further, § 126.30(D)(2) continues to specifically state that the timeframes created under Ohio's prompt payment statute will prevail over contract terms that extend the timeframe for payment. So, if a pay if paid clause would result in slower payment than what's allowed by the Ohio prompt payment statute, then the pay if paid clause would not be effective.
For more on Ohio's prompt payment rules: Ohio Prompt Payment Guide and FAQs
Are pay if paid clauses effective in Ohio?
It's also worth noting that pay if paid clauses are only partially effective in Ohio, anyway. For Ohio private projects, pay if paid clauses won't prevent the filing of a valid and enforceable Ohio mechanics lien. And, for Ohio public projects, they're only a time-shifting mechanism, rather than a risk-shifting one. Meaning, pay if paid clauses on Ohio public projects really act more like a pay when paid clause.