Conditional Payment Clauses

Ethics in a professional setting is a set of principles, ideas and attitudes on what right and wrong. We use these ideas and attitudes to control the way a profession is practiced. These moral standards by which people make personal and business decisions are what a company is ultimately judged by. It defines a company’s reputation. The integrity of a construction company starts from the management positions and trickles down all the way to the laborers. The consequences of ethical decisions in construction can often have severe consequences, which are not always going to be apparent. Furthermore, the recipient of those consequences can be many different people or organizations. Usually when a company is able to keep loyal costumers,

However, many contracts between the general contractor and sub contractors include a payment clause that conditions the payment to a subcontractor upon payment to the general contractor by the owner. This trend tends to trickle down from general contractor to subcontractor and from subcontractor to sub-subcontractor (Enforcing Conditional Payment Clauses).

Some courts have found that these clauses violate state lien statutes and public policy. In any case, it is important that subcontractors determine before signing a contract whether or not there is a pay-when-paid or a paid-if-paid clause in order to avoid any surprises. Especially since the surprise could come at the end of a job and once work has been completed. In a pay-if-paid clause contract, the subcontractor bears full risk of collection in the event of nonpayment by the owner (Enforcing Conditional Payment Clauses). In a properly drafted pay-if-paid clause, the clause will insulate a general contractor from payment liability to its subcontractor when and until the general contractor has received payment from the owner (“Pay-if-Paid”). In short, the general contractor down streams his risk of the owners nonpayment to the subcontractors making it very difficult for the subs to make claims in the case of owner

Cheating on values or necessity of the change order are often the most usual forms. This is where the stigma of bribery and kickbacks in construction are born. A change order is work that is added to or deleted from the original scope of work of a contract, which alters the original contract amount and/or completion date (Ethics in Construction industry). One problem with change orders is the ability to set the price at an amount that is significantly more than what is needed to complete the task. Some subcontractors will view the opportunity of a change order to bring in the big bucks. Since they are already under contract to perform other work on the project and will have most likely already performed work on the project, they now have the upper hand to put the owner in a position to overpay. If the owner chooses to not use the same subcontractor, and the work that is necessary in the change order pertains to work that has already been completed by the other subcontractor, then there may be issues with warranties and quality of work