Conditional Pay Clause In Construction

Conditional payment clauses are also called pay-if –paid provisions. These are one of the most contentious construction contract provisions (Brennan, 2008). They are applicable in contractor-subcontractor contracts where the contractor agrees in writing to only pay the subcontractor, once he has been paid by the owner of the construction project (Brennan, 2008). The agreement places on the subcontractor the duty of completely abiding by the provision. The clause seeks to create an obligation on the general contractor to only reimburse the subcontractor once the proprietor of the construction project has paid him. Therefore, the subcontractor’s right to receive payment from the contractor is dependent on the owner having funds. The clause has

An example of such a provision is found in section 4.7 of Document A401-2007 on the regulated types of agreements between contractors and subcontractor (American Institute of Architects, 2007, p.7). According to the provision, upon seven days of the contractor failing to pay the subcontractor through no fault of the subcontractor, the subcontractor shall stop the work until the contractor pays him (AIA, 2007, p.3). Another way that is considered more efficient in dealing with the unethical conditional payment clause is through the use of conditional payment bonds. States like Missouri and Maryland have adopted this system (Brennan, 2008, p.101). The subcontractor using this system is allowed to have a bond claim or to exercise a lien on the property of the contractor until the contractor pays him. Another practical solution is through the inclusion of the owner in the agreement between the contractor and subcontractor. A provision can be inserted into the agreement requiring that the contractor pays all of the subcontractor 's dues before receiving payment from the owner (Brennan, 2008, p.100). It would help to ensure that the contractor pays the subcontractor and hopefully will assist to reduce instances of the application of the conditional payments

A change order is a written document prepared by a contractor detailing the amendments in the work required to be made in the process of the construction scheme and how these modifications will affect the period and the cost of the project (AIA, 2007, p.29). The examples of modifications that a general contractor may be required to take are alterations in the period of concluding the construction scheme, the amount of work to be carried out, the type of work and the systems of enforcing the venture (AIA, 2007). After the owner agrees with the contractor and architect about the change order and signs it, only then will the alterations be carried out without nullifying the agreement. In submitting the change order to the proprietor of the project, the designer or contractor is to compile a list of all the costs he has incurred in the process of implementing the changes. Once the contractor effects the changes, the owner using the itemized list pays the contractor for the costs incurred due to the