Masonry Magazine June 1999 Page. 36
Subcontractors Win Big in Colorado Pay-if-Paid Case
A construction subcontractor who won an important pay-if-paid case before the Colorado Supreme Court in March was supported in part by an amicus curiae, or "friend of the court," brief filed by the American Subcontractors Association (ASA). ASA filed the amicus brief opposing pay-if-paid clauses in Main Electric Ltd. v. Printz Services Corporation using the ASA Subcontractors Legal Defense Fund. ASA invests moneys from the Fund in precedent-setting court cases on behalf of subcontractors.
In its ruling, the Colorado Supreme Court limited the use of pay-if-paid clauses in the state. The ruling adds Colorado to a continuously expanding list of states where pay-if-paid clauses have been banned or their use severely restricted.
ASA members consistently rank the elimination of pay-if-paid clauses as the most important issue at the state level for construction subcontractors.
The Supreme Court rejected a lower court's ruling that interpreted a contract clause as setting conditional payment. An Appeals Court had ruled that a clause in a construction contract was a pay-if-paid clause, but the high court restored subcontractors' right to payment except where strict pay-if-paid clauses are used.
The Supreme Court ruled, "To create a pay-if-paid clause in a construction contract, the relevant contract terms must unequivocally state that the subcontractor will be paid only if the general contractor is first paid by the owner and set forth the fact that the subcontractor bears the risk of the owner's nonpayment."
As a consequence of the decision in March, Colorado joins other states where courts have limited the use of pay-if-paid clauses, including California, New York, Tennessee and Louisiana.
State legislatures have also been vocal on the issue of contingent payment. North Carolina and Wisconsin have passed laws declaring pay-if-paid clauses void and unenforceable. Laws in Illinois, Maryland, Missouri, Montana, Ohio and Virginia take a different approach. While none of these states ban pay-if-paid clauses, the laws state that such clauses shall not provide a defense to a mechanic's lien claim (Illinois, Missouri and Virginia), or to either a lien or payment bond claim (Maryland, Montana and Ohio).
ASA serves more than 6,000 member companies through a nationwide network of local and state chapters. These subcontractors work together to protect their rights as an integral part of the construction team.
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