It is common for prime contractors to pass the risk of owner nonpayment through to their subcontractors. These “pay-if-paid” clauses say that payment by the project owner to the prime contractor for the work of the subcontractor is a condition precedent to the prime’s obligation to pay the sub. In some states, the enforceability of these clauses has been limited by statute or case law. But in the majority of jurisdictions, the clauses are enforceable if clearly and unambiguously worded.

On a project in Virginia, an unpaid subcontractor was confronted with a very clear pay-if-paid clause. The sub attacked the enforceability of the clause by arguing that incorporation of the AIA prime contract documents into the subcontract rendered the clause ambiguous. The argument failed. Virginia law favors the freedom to contract over any “paternalistic” desire to protect one of the contracting parties.

Other cases reported this week involved a lost productivity claim and an off-the-shelf liquidated damages formula. A subcontractor pursued a claim for reduced efficiency caused by a congested work area. The sub succeeded even though the claim was not supported by empirical evidence such as a “measured mile” analysis. And, the use of a formula to determine the daily rate of liquidated damages was upheld.