“Pay-if-Paid” clauses in subcontracts have always been controversial. They purport to shift the risk of project owner nonpayment from the prime contractor, who chooses to do business with the owner, to the subcontractor, who is a stranger to the owner. State legislatures have narrowed the enforceability of these clauses, and courts have shown the same tendency. This was illustrated in a recent decision by the Nevada Supreme Court. While pay-if-paid clauses are not void per se under Nevada law, a state statute does not allow them to deprive a subcontractor of its statutory prompt payment rights. A clause in a framing subcontract was unenforceable.
Contracts sometimes contain both performance standards and proprietary specifications calling for the use of a particular product. A subcontract for curtain walls had these features. The specified product could not meet the performance requirements. An Illinois court ruled that even if the subcontractor had made pre-contract representations regarding the desirability of the specified product, the prime contractor — the drafter of the subcontract — bore ultimate responsibility for the sufficiency of the specifications.
The third case in this issue involved a construction schedule in a solicitation for highway construction. A bidder obtained information from a third-party utility indicating the schedule was impossible to achieve. The bidder was required, under Maryland law, to protest the terms of the bid solicitation within seven days of learning of the problem.