“Pay-if-Paid” Battle Enters the Ohio Supreme Court
Kegler Brown Construction Newsletter July 1, 2013
A number of Ohio cases have recently held that purported “pay-if-paid” clauses were not clear and unambiguous, and therefore ineffective to shift the risk of non-payment by the owner from the contractor to the subcontractor.
On December 14, 2012, the Court of Appeals for the Sixth District in a Toledo case found that a clause providing:
“RECEIPT OF PAYMENT BY CONTRACTOR FROM OWNER FOR WORK PERFORMED BY SUBCONTRACTOR IS A CONDITION PRECEDENT TO PAYMENT BY SUBCONTRACTOR FOR THAT WORK”
was simply a “pay-when-paid” clause because the language did not clearly and unambiguously shift the ultimate risk of non-payment to the subcontractor. Therefore, payment still had to be made by the contractor in a reasonable period of time. The Court emphasized that plain language had to be used to make it clear that the “subcontractor must ultimately look to the owner of the project for payment.” Transtar Electric, Inc. v. A.E.M. Electric Services, 2012-Ohio-5986.
The Ohio Supreme Court, by a one-vote margin, agreed to accept this case for review on March 27, 2013, and it is now being briefed by the parties and amicus (“friends of the court”). A decision with statewide, or perhaps even national ramifications, is expected in the next year.