Subcontract payment provisions commonly state that a
subcontractor is not entitled to receive payment until the general
contractor has been paid. Although this ubiquitous provision may
appear to be substantively the same from contract to contract, what
appears to be an insignificant variation in the exact language
might determine whether a provision is viewed as a
pay-when-paid versus pay-if-paid clause.
If a payment provision is considered a pay-when-paid clause,
courts in most states have ruled that a subcontractor still will be
entitled to payment from a general contractor after a reasonable
period even if the building owner has not paid the general
contractor. Although there is no set time period to define what
constitutes a reasonable period, the critical legal point is that
the subcontractor ultimately is entitled to payment.
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