Contingent Payment in the New Model Subcontract: “Tempest in a Teapot”?
Kegler Brown Construction Newsletter February 1, 1995
The primary objection expressed by contractors to the new AGC/ASC/ASA model subcontract appears to be the "pay when paid" language. This language provides that the contractor will pay the subcontractor within seven days after the contractor is paid by the owner, but in no event later than a reasonable time. While the language stating "in no event later than a reasonable time" is new to the model subcontract, the previous "pay when paid" language is essentially unchanged from the earlier AGC 600 form. In most states, including Ohio, the law is that a "pay when paid" provision implies that a payment will be nevertheless made by the contractor to the subcontractor "within a reasonable time" in the event of owner non-payment or insolvency.The new "but in no event later than a reasonable time" provision merely expressly states what was already the law in Ohio anyway. Therefore, the payment provision in the newly adopted model subcontract is essentially no different than the previous AGC 600 language.