Originally posted 2016-03-02 15:25:38.
We’ve all been there. Your client either has a well drafted standard subcontract (with any luck in consultation with an experienced construction attorney) that it presents to its subcontractors and suppliers or your client is presented with a construction contract that has some provisions that it would prefer were either different or gone altogether. Continue reading Addenda to Construction Contracts Can Be an Issue
Originally posted 2011-11-04 09:00:46.
On numerous occasions, I have discussed the need to be careful with so-called “pay if paid” clauses in construction contracts. While such clauses are enforceable in Virginia (when phrased correctly), there are exceptions and limitations (for instance in the Miller Act context).
One such exception (that I frankly would have thought to be obvious) is that such clauses do not protect a general contractor from paying all subcontractors. Such a clause only protects a general contractor from payment to those subs for whose work the general contractor has not been paid. In other words, if a general contractor has been paid by an owner for a particular subcontractor’s work, it cannot use the pay-if-paid clause to deny payment even in the event that other subcontractors were deficient in their work or the owner has failed to pay the general contractor in full.
In Precision Contractors Inc. v. Masterbuilt Companies Inc. (PDF) the Fairfax, VA Circuit Court reiterated this principle stating that nothing in the contract suggests that either party to the lawsuit had any intention to shift the risk of non-payment by the owner or non-performance of other subcontractors to the plaintiff (Precision).
While this may seem obvious, the more interesting question in my mind is whether the Court would have enforced a provision in the contract that in fact shifted all of the risk downhill in the manner described above. We are in Virginia where the contract is king so I’m not sure that such a clause, correctly drafted, would not be enforced. Fairness would dictate that a performing subcontractor should not bear the weight of poor or untimely performance by its fellow subcontractors, but subcontractors must be wary of contractual language that may make them do just that.
The Fairfax court restated what we all would think is the law, however, it left the door open to enforcing some strongly pro-general contractor language in contracts. For this reason, whether you’re a subcontractor, supplier, or general contractor, you should consult with an experienced Virginia construction lawyer in order to protect your interests.
As always, I welcome and encourage your comments below, please share your thoughts. Also, please subscribe to keep up with the latest Construction Law Musings.
Originally posted 2014-07-09 09:44:02.
In Aarow v Travelers the Court looked at the interaction between a typical termination clause, a “pay when paid” clause, and the Miller Act. The key facts are these. The general contractor on the project at issue, Syska, did not get paid some disputed amounts by the owner and subsequently did not pay Aarow, the plaintiff and a subcontractor on the project. Aarow then refused to continue work and was terminated by Syska who then took over the completion of the work. Aarow sued, seeking damages for the value of its work prior to the termination. Travellers, the surety defended stating that, if Aarow was properly terminated for cause by Syska, then Aarow was not entitled to payment under the contract until such time as the work was completed and accepted by the owner. The termination clauses are set out in the linked opinion.
The Court agreed with Travelers, stating that the pay when paid clause created a situation whereby Aarow could not stop work merely because of a non-payment by Syska attributed to non-payment by the owner. The Court was clear in stating that the Miller Act trumps “pay when paid” in instances where the only cause for non-payment is non-payment by an owner. The Court then reasoned that it is the interaction between the termination and “pay when paid” provisions, and not the “pay when paid” clause itself, that exonerated Travelers because it created the default by Aarow due to its refusal to continue work. In short, Aarow was properly terminated for cause because it left the job without justification and therefore Travelers was not liable.
What can we learn from this? 1. A “pay when paid” clause, on its own, does not create a defense to a Miller Act claim; 2. Read every line of a construction contract before you, as a subcontractor, leave a job site and refuse to come back; and 3. The Miller Act does not completely absolve parties to a contract from the terms of that contract.
In sum, the careful reading of your construction documents and the advice of a construction lawyer before making a big decision like leaving a job site can go a long way toward a successful collection action under the Miller Act.
Update: The 4th Circuit reversed this ruling and gave some more insight into the interaction between the “pay if paid” and the “prevention doctrine.” I “muse” about it in my November 28, 2011 post.
As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.