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. 

Inc. 5000 America's Fastest-Growing Private Companies
Inc. 5000