State construction laws and case law interpreting those laws dramatically impact your contract and, thereby, your risk profile on a project. Before you sign or bid on your next construction contract, it is wise to have a system to navigate these laws. ConsensusDocs is presenting a webinar on November 9th (Register here), providing a systematic approach to navigating critical construction laws and the latest trends. Specific laws covered will include hot-button state construction laws, such as pay-if-paid, indemnification, prompt pay, and notice requirements.
Pay-if-paid laws illustrate how state laws and legal interpretations vary and are important. Pay-if-paid laws address the enforceability of contracts that attempt to pass along the risk of an owner’s non-payment to the subcontractor/trade contractor. In a state that explicitly prohibits pay-if-paid, the constructor is fully responsible for paying its subcontractors after a reasonable amount of time has passed for payment due (what is a reasonable amount of time varies from state to state), even if the subcontract says otherwise. However, if you are in a state that allows a pay-if-paid clause in your contract, the constructor is not responsible for paying its subcontractors if it includes such a provision and has not received payment. However, state laws can quickly get complicated. Some states don’t prohibit pay-if-paid provisions but strictly construe pay-if-paid provisions. So, suppose you do not have the precise contractual language (some might say “magic words”). In that case, a constructor may not think they are contractually responsible for paying its subcontractors, but they may be mistaken.
Both ConsensusDocs and the American Institute of Architects (AIA) standard subcontract language use pay-when-paid language. Pay-when-paid language sounds conditional like pay-if-paid language, but its effect is much different. Pay-when-paid language means that after some reasonable amount of time passes, a subcontractor will get paid unless there is a legitimate reason to withhold money other than an owner’s non-payment. From the subcontractor’s point of view, they have a contract with the constructor, not the owner, and if they perform the work, they should get paid for completed work.
The Associated General Contractors (AGC) posts guidebook comments to ConsensusDocs standard language on its member-only website at www.agc.org/contracts as a download on the bottom right-hand side of the page. AGC does not advocate for the use of pay-if-paid clauses, it does offer this model language to assist those members who wish to modify a ConsensusDocs subcontract. This same language would also work for an AIA subcontract or bespoke contract as well. Virginia is a state that has actively passed laws changing the enforceability of pay-if-paid clauses. Two legislative cycles ago, Virginia went from a state that allowed pay-if-paid laws to a state that outlawed them. Recently, they passed legislation clarifying the statutory language.
Many other hot-button state law issues impact your contract’s enforceability. Anti-indemnification language prevents the enforceability of indemnification language (hold harmless) that makes a downstream contracting party responsible for an upstream party’s actions, even if the upstream party is 100% at fault.
These and more than 60 construction laws are covered by the AGC/ABA State Law Matrix for each state, as well as D.C. and Puerto Rico. The Matrix is the most comprehensive and concise resource for quickly locating state laws affecting public or private construction projects. Webinar registrants of the ConsensusDocs upcoming webinar will later get a $99 discount to purchase the Matrix for their use, which is equal to the retail price for the upcoming webinar.
Comments or questions about this article may be directed to Brian Perlberg, Executive Director and Senior Counsel, ConsensusDocs Coalition, at bperlberg@ConsensusDocs.org.
AGC Members-Only Commentary (requires log-in to view)