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pay when paid versus paid if paid

OhioConstruction Contract

what are the ramifications of Paid when Paid versus Pay if Paid?

3 replies

Feb 18, 2021

A pay-when-paid clause is an unconditional promise to pay amounts due under a contract. If the contract contains a pay-when-paid clause, the general contractor (or higher-tier subcontractor) is obligated to pay the lower-tiered subcontractor, regardless of whether the owner has paid the general contractor.

A pay-if-paid clause makes payments due under a contract contingent upon the General Contractor (or higher-tiered subcontractor) first getting paid by the owner. Thus, in a pay-if-paid scenario, a situation can arise where a subcontractor performs work, even significant amounts of work, but because the owner has not paid the general contractor, the general contractor does not owe anything to the subcontractor.

Generally speaking, any provision that is not a pay-if-paid provision equals a pay-when-paid provision, since the Ohio Supreme Court has said that there are only two types of provisions. 

It may be impossible to avoid a pay-if-paid provision, as most general contractors include the provision nowadays as a way to protect themselves from the obligation to pay in the event the owner's financing falls through. 

Whenever a pay-if-paid provision is in play, it becomes even more important for subcontractors and suppliers to follow the mechanic's lien law to the letter so their lien rights are preserved in the event the general contractor does not make payment. 

1 person found this helpful
Feb 18, 2021
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