Paid when paid/ Paid if paid/ Flow through contract clauses

They are the lifeblood of general contractors and despised by subcontractors. Flow through agreements provide for payment of a subcontractor when or if a general contractor is paid. Contractors will tell you they need flow through clauses in their contracts, for among other reasons, to insure that their subs do work which satisfies the owner. Subs will tell you that flow through clauses provide contractors with excuses not to pay them when a job is underbid or is improperly managed by the general contractor.

However, flow through clauses are often interpreted only as a timing mechanism for requiring payment and often cannot be used as a method to completely deny payment to a sub if proper work is performed. The language of the flow through clause and the state where the work is performed are very significant when determining if a flow through clause is enforceable.

When drafting, negotiating or deciding whether to sign a general/ subcontractor agreement, it is important that a contractor seek the assistance of counsel in order to determine the effect of the ever present flow through clause.

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