Texas Contractors, Subcontractors Agree To Rules For Contingent Payment Clause Enforceability
In November 2001, 15 Texas contractors and subcontractors, two lawyers, and a facilitator from North Carolina set out on a quest. They were determined to do what two major segments of the Texas construction industry had not been able to do for decades: establish fair rules for the use of contingent payment clauses in construction subcontracts. The participants were volunteer general contractors from the Texas Building Branch of the Associated General Contractors (AGC) and subcontractors from the Texas Construction Association (TCA), an organization of subcontractor and supplier trade associations.
Contingent payment clauses or “pay if paid” clauses are common risk shifting clauses used to shift or spread the burden of a project owner’s failure to make payment from the general contractor to its subcontractors. In simple terms, the general contractor uses a subcontract term, which says to the subcontractor, “If I don’t get paid by the owner, you don’t get paid”.