Court Eases Enforcement of Pay-if-Paid Provisions

Provided by: Frantz Ward LLP
 The Ohio Supreme Court issued a much-anticipated ruling in a case addressing the language needed to create an enforceable pay-if-paid clause. Subcontracts often include such language, which attempts to shift the risk of non-payment by the owner from the general contractor to the first-tier subcontractor and on down the line.  The Supreme Court made drafting and enforcement of such provisions easier.  Such terms will likely be enforced if they merely say that payment from above is a condition precedent to issuance of payment. The Supreme Court's summary and the opinion (Transtar Elec., Inc. v. A.E.M. Elec.Svcs. Corp., 2014 Ohio 3095) are available here. If your company has a standard form, this is a good time to review it.  And, contractors must always carefully review the terms of the agreements they are given by their contracting partner.