I suppose that it is apropos that I have been delayed in writing this final piece in the four-part Limitations of Liability series, relating to subcontract pay if paid and flow through clauses. Being more than one step removed from a project’s funding source, subcontractors are used to being dealt with last, and only after a lag in the schedule, whether foreseeable or not. Subcontractors will tell you that “it” tends to flow downhill, and financial issues and project glitches tend not to improve by the time they make their way to the subcontractor, whether the issues or glitches are tied to the subcontractor or not.
Their concerns regarding delays in payment appear to be justified. In a recent ENR survey, thirty percent (30%) of payments from contractors to subcontractors were late, by an average of 36.4 days. Eighty-Three of the subcontractors surveyed reported that more than 6 in 10 payments were past due. Although most states now have prompt pay laws, with varying degrees of penalties, the survey reflects that these laws seem to have minimal impact on the timing of payments. Perhaps these timing issues relate to project owners holding funds as long as possible to earn additional interest, but with interest rates so low, that seems unlikely. Maybe project owners are being cautious and remain as far ahead of their contractors and subcontractors as possible in the funding of the project. More likely, subcontractors are reluctant to harm their business relationship with contractors, or simply don’t wish to incur added costs in pushing the timing of payments.
Continue Reading Limitations of Liability – Scenario 3: Pay if Paid and Flow Through Clauses