Pay-If-Paid Not Easily Waived

Pay-if-paid clauses in construction contracts are intended to shift the risk of owner nonpayment for a subcontractor's work to the subcontractor, so that the general contractor is not obligated to pay if he is not paid by the owner. These clauses are enforceable in some states and not in others. In Georgia, a clearly drafted clause is enforceable. However, a recent court decision went further and announced that such a clause cannot be waived unless the evidence is so "clear and unmistakable" as to "exclude any other reasonable explanation." Vratsinas Construction Co. v. Triad Drywall, LLC, 321 Ga. App. 451, 739 S.E.2d 493 (2013).

The case involved a drywall subcontractor's payment claim against the general contractor on a shopping center construction project. The subcontract contained a pay-if-paid provision that payments were "expressly and unequivocally contingent upon ... receipt of payment from Owner for the Subcontract Work." It also provided that the subcontractor "expressly acknowledges that it relies on payment under the Subcontract on the creditworthiness of Owner, and not that of Contractor," and the Owner's acceptance of the work and payment to the GC were "express, independent conditions precedent to any obligation" of the GC to pay the subcontractor.

The GC defended the claim based on the pay-if-paid clause and nonpayment by the owner, and the subcontractor argued that the clause was waived. There was evidence that the subcontractor's co-owner met with the GC's project manager when concerns arose about the project owner's solvency and ability to pay. According to the subcontractor, the GC told the subcontractor not to worry about the owner's finances and to keep working, and the GC would pay the subcontractor from its own pocket if necessary. Thereafter, the GC paid the subcontractor's next pay request in full, even though the GC was not paid in...