AIA A401 Subcontract Is Not “Pay When Paid”
Kegler Brown Construction Newsletter April 1, 2005
Subcontractors typically favor use of the AIA A401 subcontract form.
This form provides that "if the Architect does not issue a Certificate of Payment or the Contractor does not receive payment for any cause which is not the fault of the Subcontractor, the Contractor shall pay the subcontractor, on demand . . .".
A general contractor on a Massachusetts school project argued that another provision of the subcontract which required the general to pay the sub "within three working days after the Contractor receives payment from the Owner" made the subcontract "pay when paid" so that the general did not have to pay until he received payment from the owner.
The Court disagreed and found that the subcontract is not "pay when paid," as it does not create a clear precondition to payment. Therefore, the general contractor had to pay the subcontractor even though he had not yet been paid by the owner.
This case confirms what many of us have believed for years, that if a subcontractor utilizing this subcontract form is unpaid for any reason other than his "fault," the subcontractor is entitled to payment upon demand.