“Pay when Paid” versus “Pay if Paid”

Most subcontracts contain language, which state that the contractor shall pay the subcontractor within so many days after the contractor’s receipt of payment from the owner.  The question then becomes, “what happens if the owner never pays the contractor?”  It is a complicated question that has been the subject of much litigation.  The general rule is that – provided the owner is not withholding payment due to a failure by the subcontractor – the subcontract will be interpreted as requiring payment within a reasonable time. In other words, even if the owner does not pay the contractor for the subcontractor’s work, the contractor will still be expected to pay the subcontractor despite the fact that the subcontract requires the owner to first pay the contractor.

Of course, as with almost every legal issue, there are exceptions to the general rule.  For example, there are “magic words” that will make it more likely that the court will find that the subcontractor has given up its right to payment should the owner not pay the contractor.  Examples of such “magic words” are as follows:

• Contractor’s receipt of payment from owner is a “condition precedent” to the subcontractor’s right to payment;

The Connecticut Home Improvement Act Has Harsh Penalties With Limited Exceptions

According to the Home Improvement Act (the “Act”), a home improvement contractor has no legal right to payment if his contract is not entered into by a registered salesman or contractor and does not contain:

  • the signatures of both the homeowner and contractor;
  • notice of the homeowner’s cancellation rights; and
  • a start date and a completion date.

Even if the homeowner testifies, under oath, that he requested the work, that the work was performed in a workmanlike manner, and he didn’t pay the amount he had agreed to pay, the contractor will still lose the lawsuit if the contract does not comply with the Act.  Like most laws, however, there are exceptions to this rule.

A contractor may be able to get paid if a court finds that the homeowner was acting in “bad faith.”  The Connecticut Appellate Court recently issued a decision that explains the limits of that exception.

In Lucien v. McCormick Construction, LLC, 122 Conn.App. 295 (Conn.App. 2010), the Connecticut Appellate Court refused to invoke the bad faith exception.  The facts were that the homeowner:

  • was represented by counsel; 

What to Do When You Don’t Have Time to Wait for a Written Change Order

One of the most litigated construction law issues is whether a contractor is entitled to payment for additional work performed without a fully executed written change order.  Most construction contracts state that the contractor is not entitled to payment for any additional work, unless the additional work is performed pursuant to a written change order that has been sign by the owner, contractor and the architect.  The problem is that — because time is money — waiting for a signed change order is often costly so most contractors move forward with additional work based upon verbal agreements with the intention of executing a written change order at a later date.

Most of the time, no problems arise from having performed additional work without first having a written change order.  The parties abide by their verbal commitments, which are then incorporated into the written change order required by the contract.  Once in a while, however, an owner will refuse to issue payment for work that was performed without a written change order despite an oral agreement being reached during the project.  In these situations, some courts have enforced the contract provision requiring written change orders and have denied the contractor the right to recover payment for his work.