Jon Straw / May 05, 2021 / 3 minute read
Consider the intersection of a payment bond claim and a pay-if-paid provision.
In defending against a payment bond claim, the principal and surety generally share the same defenses. For example, there is a one-year deadline to file a payment bond claim under the Federal Miller Act. Similarly, both surety and principal have common law rights of setoff (payment reduction) for work that was improperly or untimely performed by a claimant. Even contract provisions setting a reasonable time for payment are still enforceable (i.e., pay-when-paid clauses).
Unlike a pay-when-paid provision that simply sets a reasonable time for payment, a pay-if-paid clause typically conditions payment on the owner first having paid the prime before the prime must pay the sub. Enforceable pay-if-paid clauses must be express and unambiguous because they shift the risk of non-payment to a party that cannot directly trigger the condition. The sub cannot directly contr
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In October, the Nevada Supreme Court revisited the enforceability of pay-if-paid clauses in construction contracts. Despite being enacted nearly two decades ago and being amended several times since, the Nevada Prompt Payment Act still garners differing opinions regarding the enforceability of pay-if-paid clauses, which the Nevada Supreme Court held requires a case-by-case analysis.
In broad terms, the Nevada Prompt Payment Act requires compliance with contractual terms of construction agreements and provides reasonable terms when specific terms are either missing or violate the statute. Specifically, NRS 624.628(3) protects a subcontractor’s statutory rights from modification by contract. The provision provides that: