will kick in, this is not the case in most states. Most courts will interpret such language (variations of which can be found in the trade association forms like the ConsensusDocs and AIA subcontracts) to give the prime contractor a reasonable amount of time to first obtain payment from the owner, but to still carry an absolute obligation to pay the subcontractor if the owner doesn’t pay within such reasonable time. In contrast, a pay-if-paid clause will (in the states that enforce them, which is most) operate to bar the subcontractor’s right to payment if the owner for any reason fails to pay the prime contractor. Pay-if-paid clauses may state, “The obligation of Contractor to make payment to Subcontractor is subject to the express condition precedent of Contractor’s receipt of payment from Owner.” Some states void pay-if-paid clauses. But most don’t, so long as the language is unambiguous. Though the language in such clauses can vary widely, a big tip is to look for “condition precedent” in the clause. If it is there, presume the worst: that you have a pay-if-paid clause, and modify the language. You are not likely to eliminate conditional payment language entirely, but a reasonable compromise is to simply change the language so it mirrors ConsensusDocs or AIA language. If you accomplish this, you will have a pay-when-paid clause, and that can be the difference between eventually getting paid and never getting paid. That’s a big difference.
Top Change #2—Insist You Are Provided All Subcontract Documents That Are Relevant to Your Work Don’t forget that the “subcontract documents” include documents beyond the “subcontract.” This includes not only the prime contract but documents that may not have existed,
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when you bid the project. Perhaps most important, prime contract responsibilities that the general contractor agrees to are commonly “passed through” to subcontractors via a “flow-down” clause. A flowdown (or “pass-through”) clause is a common provision providing that the terms of the prime contract are binding on the subcontractor, and the result can even be found by a term that makes the prime contract a subcontract document. Unfortunately, though many subcontractors assume the extent of any pass-through is limited to assuming responsibility for the portion of the prime contract work they are performing, this may not be the case. Things like prime contract notice provisions, warranties, upfront waivers or agreements to subjugate mechanic’s lien rights, and insurance requirements are all examples of things that a subcontractor might be found to have “agreed” to be bound to through operation of a flow-down provision or incorporation of the prime contract into the subcontract. Some of this is fair enough, and unavoidable, but if the subcontract is silent on your right to all such documents, you must insist to be given any documents your customer contends relate to your work and subject of to the flow-down clause. And, so you have a meaningful remedy or defense if you are later caught in such a clause, but were not provided the document in advance, you need to ensure your subcontract makes this obligation a contractual requirement on your customer. And, if the subcontract only states that such documents “may” or will be made available to you on request, you need to exercise your right to all contract documents up front, before you sign the subcontract, so if there are material or unacceptable provisions, you can resolve them then, before you find yourself in a world of hurt.
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Hundreds of thousands to millions of dollars in mechanic’s lien rights can be lost if your customer agrees to waive its lien rights up front and the court agrees that such waiver (or subjugation of lien rights) was agreed to by subcontractors who signed a subcontract that passed down all prime contract obligations. Similarly, hundreds of thousands to millions of dollars in claims can be lost through untimely notice if the prime contract contains different (shorter) deadlines to provide notice of claims you were not aware of. In the hurry to get moving on a new job, don’t take on unseen and potentially devastating risks by ignoring a thorough review of all contract document that apply to your work, and making sure your customer contractually commits to providing you, before execution of the subcontract, with all documents it contends form the subcontract documents.
Top Change #3—Do Not Agree to Upfront Waivers or Restrictions on Your Mechanic’s Lien Rights You should never waive lien or bond rights for anything other than payment (and only for the payment received). Period. Yet this happens. More often than you would think. Contrary to popular belief, in many states an “upfront” mechanic’s lien waiver in a subcontract (signed before work begins) can be enforceable. As important as such rights are to subcontractors, there rarely is good justification for being asked to sign such a waiver, and even less to agree to it. About the only time a waiver of mechanic’s lien rights on private jobs may be palatable is if the owner is requiring a payment bond for the protection of subcontractors is available to provide the security otherwise available with the liens
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