Pay-if-Paid Provisions

If I have not been paid by the owner, do have an obligation to still pay my subcontractors?

                In construction, pay-if-paid provisions state that the higher-tier contractor is under no obligation to pay the lower-tier subcontractor if the higher-tier contractor has not first been paid. Payment by the owner is a condition precedent to pay lower-tier subcontractors. Maryland law allows pay-if-paid provisions and only holds them invalid if the higher-tier contractor is at fault for causing the owner to withhold the funds. The provision must be conspicuous and clearly identifiable as a pay-if-paid provision and explicitly state that payment by the owner is a condition precedent for subcontractor payments.

Prior to January 1, 2023, Virginia followed Maryland, but now no longer allows pay-if-paid provisions. Higher-tier contractors are liable to lower-tier subcontractors for the entire amount owed for their work performed without first obtaining payment from the owner. In private contracts, payment to the lower-tier subcontractor must be made within the earlier of 60-days after completion of work or 7 days after receipt of funds from the owner. Bankruptcy or insolvency of the owner or higher-tier contractor does allow a return to a pay-if-paid structure. Payments are still allowed to be withheld for noncompliance, but the lower-tier subcontractor must be notified in writing of the amount and reason for the withholding. This new change does not affect retainages which are still expressly allowed by the statute.