The subcontractor community has waged war against pay-if-paid clauses for many years. But the war is not over, per two recent decisions, one from the Kentucky Supreme Court and one from a Connecticut trial court.
The Kentucky Supreme Court held that a pay-if-paid clause is enforceable under Kentucky law. The effect of that decision was to insulate the prime CM against a sub’s claims for extra work for which the owner had refused to pay the CM. (Ironically, the sub’s unjust enrichment claim against the owner, which would be barred in most states where the sub has a contract remedy to recover the money claimed, was revived by the KY high court since the sub no longer had its contract remedy.)
The Connecticut court upheld a pay-if-paid clause, finding that the language explicitly shifted the risk of owner non-payment to the subcontractor. In doing so, the CT court held that other state law precedent either concerned public projects, or involved language that was not as explicit.
As many readers know, prompt payment laws in many states have either outlawed or restricted the scope of pay if paid contract clauses. So, the subcontractor community has won the battle in many states. The recent decisions demonstrate, though, that the war is not over.
The Kentucky case is Superior Steel v. The Ascent at Roebling’s Bridge, 2017 Ky. LEXIS 511 (Dec. 14, 2017), and the Connecticut case is Baker Concrete Const. v. A. Poppajohn Co. (LEXIS subscription required), 2017 WL 4106383 (Nov. 8, 2017).