Pay-When-Paid Clauses Unenforceable

In the recent case of Crosno Construction Inc. v. Travelers Casualty, the Fourth District California Court of Appeals decided that an industry standard “pay-when-paid” contract clause (part of the AGC Short Form Subcontract) was ruled void and unenforceable. The ruling was based on the grounds that the pay-when-paid clause violated state public policy because it did not provide for payment to the subcontractor within a reasonable time since payment was delayed indefinitely for as long as it took the general contractor to pursue its claim against the project owner.

 

Practical Considerations:

 

  • Subcontractors of public works projects should review existing subcontracts to determine whether pay-when-paid provisions in their contract complies with the Crosno ruling.
  • If subcontractors on public works projects have been waiting for payment for an extended period of time due to nonpayment by the owner, recovery on a payment bond claim prior to the resolution of the dispute between the general contractor and the owner may be a feasible option. Sub-contractors in this situation may wish to first send a demand for payment to the general con-tractor citing the Crosno case.

 

Before taking action, it is recommended that public works subcontractors consult with their firm’s attorney to ask about their remedies under Crosno and what avenues to payment may be available to them.

 

As an LAPFCA member, you have access to our legal counsel. Please respond to this email if you’d like to utilize this option.

 

Click here to read the memo from legal on the case.

Click here to read the case itself.

Recent Posts

WPCCA Introduction to Microsoft Copilot 365 – Part 2

Building on our introduction to Microsoft Copilot 365, this session will explore practical applications in everyday tasks. Discover how Copilot can enhance your productivity in Microsoft Word, PowerPoint, and Teams. In part 2 of this training, JoLynn Rihn will demonstrate…

February 4, 2025

WPCCA Introduction to Microsoft Copilot 365 – Part 1

Dive into the world of Microsoft Copilot 365 with this introductory session. Learn the basics of how Copilot can assist you in your daily tasks, from drafting emails to generating reports. In Part 1 of this training, led by Microsoft…

February 4, 2025

Support Industry Legislation to Cap Retention on Private Construction Contracts at 5%

On behalf of the industry, Senator Dave Cortese (D-San Jose, CA) has introduced SB 61, to establish a 5% cap on retention for private construction contracts in California. This measure aligns private project retention practices with the successful 5% cap…

January 28, 2025

Brunch Break

Join us in an opportunity to get to know your fellow WPCCA members for brunch at the beautiful Old Ranch Country Club in Seal Beach! This event will feature a presentation by Allen Carberry, Safety Training Coordinator at DC 36…

January 22, 2025

WPCCA Economic Outlook Webinar: Monetary Masala

With the presidential and congressional elections of 2024 in the rearview, our eyes turn to 2025.  Has the Federal Reserve engineered a soft landing, or is stagflation on the way?  Can America continue to pace the advanced world, or will…

January 7, 2025
MORE STORIES