Florida Construction Law

Pay when paid clause in a subcontract was held unenforceable because the subcontract incorporated the terms of the prime contract by reference, and the final payment provision in the prime contract was ambiguous.  International Engineering Services v. Scherer Construction & Engineering of Central Florida, LLC ., 2011 WL 5109306 (Fla. 5th DCA 2011). Trenton H. Cotney Board Certified in Construction Law Trent Cotney, P.A. 1207 N Franklin St, Ste 222 Tampa, FL 33602 (813) 579-3278 www.trentcotney.com

A subcontractor should also examine other documents that are incorporated by reference into its subcontract.  For example, on many commercial projects, the prime contract is often incorporated into the subcontract.  The prime contract may conflict with the pay when paid provision contained in the subcontract.  For example, there may be a valid pay when paid clause in the subcontract, but the prime contract requires the prime contractor to pay subcontractors before receiving payment from the owner.  In this case, courts have held that the pay when paid clause is deemed ambiguous because of this incorporation of other payment provisions.  See O.B.S. Co., Inc. v. Pace Construction Corporation , 558 So.2d 404 (Fla. 1990).  The courts state that payment must be made within a reasonable time.  The courts often construe payment within a reasonable time as whatever the normal payment cycle is.  Payment within a reasonable time can be anywhere from...

As with all contract provisions, the course of conduct or actions between the parties can result in the waiver of a contractual requirement.  With regard to a contingent payment clause or pay when paid provision, if the prime contractor previously paid the subcontractor despite not being paid by the owner, then the subcontractor will have an argument that the prime contractor waived the pay when paid provision.  In other words, the course of conduct between the parties on the project demonstrated that the prime contractor intended to pay the subcontractor regardless of the validity of the pay when paid provision. Trenton H. Cotney Board Certified in Construction Law Trent Cotney, P.A. 1207 N Franklin St, Ste 222 Tampa, FL 33602 (813) 579-3278 www.trentcotney.com

The Court in Bentley Construction Development & Engineering, Inc. v. All Phase Electric & Maintenance, Inc ., 562 So.2d 800 followed the previous decisions and stated in the concurring opinion that “established precedent now seems to require this type of contract to contain a statement that payment by the owner is a ‘condition precedent,’ a statement that payment is ‘contingent upon payment to the contractor,’ or some comparable emphatic statement before the clause will be deemed sufficiently clear to permit judicial enforcement.”  Accordingly, subcontractors can defeat a pay when paid clause by arguing that the pay when paid clause does not contain the magic language in order for it to be enforceable in Florida. Trenton H. Cotney Board Certified in Construction Law Trent Cotney, P.A. 1207 N Franklin St, Ste 222 Tampa, FL 33602 (813) 579-3278 www.trentcotney.com

The Court in DEC Electric, Inc. v. Raphael Construction Corp., 538 So.2d 963 (Fla. 4th DCA 1989); aff’d   558 So.2d 427 (Fla. 1990) noted the history of pay when paid cases and stated that clauses that contain “contingency” or “conditioned” were upheld and clauses that contained “unless” or “until” were found ambiguous and payment was required within a reasonable time period.     Trenton H. Cotney Florida Bar Certified in Construction Law Glenn Rasmussen Fogarty & Hooker, P.A. 100 S. Ashley Dr., Suite 1300 Tampa, FL 33602 (813) 229-3333 http://www.glennrasmussen.com

The Peacock Court held that because this provision was a risk-shifting provision, the clause must contain specific language in order for it to be enforceable.   The clause must expressly state that payment to the subcontractor is conditioned upon receipt of payment by the prime contractor from the owner.   The Court also noted the public policy reason of holding pay when paid clauses to a higher standard.   Often, subcontractors are smaller than their prime contractor counterparts and cannot afford to bear the risk of owner non-payment.   Trenton H. Cotney Florida Bar Certified in Construction Law Glenn Rasmussen Fogarty & Hooker, P.A. 100 S. Ashley Dr., Suite 1300 Tampa, FL 33602 (813) 229-3333 http://www.glennrasmussen.com

In Peacock Construction Company, Inc. v. Modern Air Conditions, Inc. , 353 So.2d 840, the Florida Supreme Court looked at the issue of pay when paid clauses and their validity.   The Court reviewed a contract provision which provided that the subcontract would be paid: “within 30 days after the completion of the work included in this sub-contract, written acceptance by the Architect and full payment by the Owner.”   The Court held that this provision was ambiguous because it can be construed as pay within a reasonable time or that payment was contingent upon the prime contractor’s receipt of payment from the owner.   Because of the ambiguity, the Court held that the payment clause required payment within a reasonable time regardless of whether the prime contractor received payment.     Trenton H. Cotney Florida Bar Certified in Construction Law Glenn Rasmussen Fogarty & Hooker, P.A. 100 S. Ashley Dr., Suite 1300 Tampa, FL 33602 (813) 229-33...

Not all states allow contingent payment clauses.   For example, New York has banned such provisions.   However, in the State of Florida, a prime contractor can use a pay when paid clause to avoid paying a subcontractor if it is specifically worded.   The pay when paid clause must make it absolutely clear that payment to the subcontractor is conditioned upon receipt of payment by the prime contractor from the owner.   If it does not unequivocally state that the promised receipt of payment is a condition precedent, then courts will find the provision ambiguous and hold that payment must be received within a reasonable time period. Trenton H. Cotney Florida Bar Certified in Construction Law Glenn Rasmussen Fogarty & Hooker, P.A. 100 S. Ashley Dr., Suite 1300 Tampa, FL 33602 (813) 229-3333 http://www.glennrasmussen.com

One of the justifications often used by a prime contractor to avoid paying a subcontractor is a contingent payment or “pay when paid” clause contained in the subcontract.  This clause usually states that the prime contractor has no obligation or duty to pay the subcontractor until payment is received by the prime contractor from the owner.  Upon first glance, many subcontractors believe that this provision prevents them from obtaining payment.  However, in Florida, there are at least three ways to beat pay when paid clauses. Trenton H. Cotney Board Certified in Construction Law Trent Cotney, P.A. 1207 N Franklin St, Ste 222 Tampa, FL 33602 (813) 579-3278 www.trentcotney.com

In Peacock Construction Company, Inc. v. Modern Air Conditions, Inc. , 353 So.2d 840, the Florida Supreme Court looked at the issue of pay when paid clauses and their validity.  The Court reviewed a contract provision which provided that the subcontract would be paid: “within 30 days after the completion of the work included in this sub-contract, written acceptance by the Architect and full payment by the Owner.”  The Court held that this provision was ambiguous because it can be construed as pay within a reasonable time or that payment was contingent upon the prime contractor’s receipt of payment from the owner.  Because of the ambiguity, the Court held that the payment clause required payment within a reasonable time regardless of whether the prime contractor received payment.     The Court held that because this provision was a risk-shifting provision, the clause must contain specific language in order for it to be enforceable.  The clau...