Subcontract “pay-if-paid” clauses make a prime contractor’s obligation to pay a subcontractor contingent on the prime receiving payment in full from the project owner for the work performed by the subcontractor. The impact on subcontractors is severe. A sub has no contract with the project owner and no control over the owner’s payment practices. Consequently, the enforceability of these clauses has been constrained by legislatures and courts.
The Nevada Supreme Court recently ruled that while pay-if-paid clauses are not unenforceable per se in that state, they will not be enforced when they violate a subcontractor’s statutory right to the retainage. The clause in that case was unenforceable. But the unenforceability did not negate other, valid conditions precedent to the subcontractor’s right to receive its retainage.
The other case in this issue involved the validity of an arbitration award that arguably misinterpreted and misapplied the terms of the construction contract. Such misinterpretation would not constitute a “manifest disregard of the law” by the arbitrator. The arbitration award should not be vacated.