Changes in pay-if-paid clause
Texas first state to sign bill
Virginia Lee, executive director, Texas Glass Association, was at the NGA office for a chapter meeting June 20. Sahely Mukerji, managing editor for Glass Magazine, took the opportunity to talk to her about the contingent payment bill, SB 324, to be effective Sept. 1.
Texas Gov. Rick Perry signed the contingent payment bill, SB 324 recently. Can you boil the clause down in simple English?
We’re the only industry that pays from the bottom up, not top down. The pay-if-paid clause in subcontracts shifts the financial risks of non-payment from one party to another. General contractors write “contingent pay” clauses in contracts so they can make the work performed by the subcontractor conditional upon receipt by another person.
This placed an unfair burden on the subcontractor who has already expended monies, supplies and labor to fulfill their contractual obligations. The clause basically had the intent of the GC not having to pay the subcontractor until and unless the contractor received payment from owner.
This clause unfairly subjected the subs to risks they have no control over. The sub has no privity?? with the owner and has limited ability to perform due diligence on the owners credit worthiness. The clauses have the potential to be used unscrupulously to avoid payment when the owners withhold payment because of the GC's default.
SB324 clarifies the circumstances in which contingent pay clauses will be enforceable and provides penalties for non-compliance
What does it mean for the glazing industry? How will it affect the industry?
This is a huge victory, not only for the glazing industry, but for subcontractors. No longer will subs be subject to these clauses unfairly. Is it everything we wanted? It never is. It was a compromise bill. It states, if the default is “unconscionable,” the case goes to court; but who defines “unconscionable”?
What will change?
SB324 provides a safer and more equitable contract for the subs. This bill provides recourse for the subs and no longer puts the subs at such a disadvantage. The compromise provides protection for projects under $10 million.
Which organizations were involved in getting it passed?
This was one of the primary objectivess of the Texas Glass Association when it was formed in 1990. In 1998, TGA joined the Texas Construction Association along with 13 other small trade associations in Texas to fight this, as well as other issues unfriendly to the sub-contractor. The Associated General Contractors of America also stepped forward and helped make this happen.