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ARTICLE · 05 DECEMBER 2022

Here's The Drill: "Pay When Paid" Clauses In Subcontracts

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Many subcontracts include payment terms that try to shield the contractor from having to pay a subcontractor in the absence of the contractor receiving payment from the owner.

CanadaReal Estate and Construction
Jeff Scorgie
Jeff Scorgie
Amir Sodagar
Amir Sodagar
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Many subcontracts include payment terms that try to shield the contractor from having to pay a subcontractor in the absence of the contractor receiving payment from the owner. These clauses can take different forms and are sometimes referred to as "pay when paid", "pay no later than", or "pay if paid" clauses.

A recent court decision in Canadian Pressure Testing Technologies Ltd v EllisDon Industrial Inc, 2022 ABKB 649 provides some useful guidance for how these clauses will be interpreted and enforced.

The court in Canadian Pressure was asked to review the following payment term in a subcontract:

[P]ayments shall become due and payable no later than five (5) business days after the [Contractor] receives payment pursuant to the terms and conditions of the Prime Contract from the Owner.

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