Should I specify when my client pays for completion of services?

Jan 8, 2018 | Contract Tips

Q: Is it critical to specify when the client should pay for completion of services?

A:  Keep in mind that claims related to nonpayment are typically uninsurable.  Therefore, be wary of “pay when paid” and “pay if paid” terms when agreeing to a contract.  It‘s understandable to strike provisions not providing timely payment from your client, but if you have subconsultants, be vigilant that payment to them is then dependent on your receipt of payment from your client.

Q:What is “Paid if Paid” and “Pay when Paid”?

A “pay if paid” clause is a payment clause that states that the contractor is obligated to pay its subcontractors only if the contractor receives payment from the owner. In other words, if the owner never pays the contractor, the contractor has no duty to pay you.

A “pay when paid” clause is a payment clause that states that the contractor is obligated to pay its subcontractors following receipt of payment from the owner. In other words, if the owner delays three months in paying the contractor, the contractor has no duty to pay you during that period of delay.

Read more about “Pay when Paid” clause, on the International Risk Management Website, https://www.irmi.com/