“Pay-if-Paid” Bites the Dust in Another State

Kegler Brown Construction Newsletter

Nevada recently joined the list of states (like California and New York) that have found “pay-if-paid” clauses unenforceable as against public policy. The Supreme Court of Nevada ruled that lien waivers and “pay-if-paid” provisions used on the Venetian project were invalid because the “pay-if-paid” provision “limits a subcontractor’s ability to get paid for work already performed” and “has the same practical effect” as a waiver of lien rights. Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., et al., 124 Nev. Adv. Op. 39 (June 2008).

While many states still find “pay-if-paid” clauses (meaning that if the owner does not pay the general contractor, the subs never get paid) enforceable if plainly and unambiguously stated, it appears that many courts are recognizing the inherent unfairness of such clauses and looking for a way to declare them invalid, particularly if they have the practical impact of restricting subcontractors’ statutory or constitutional rights to mechanic’s liens.