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The Reemergence of Pay-When-Paid

| Oct 14, 2016 | Construction Law |

In the recent unreported case of Young Electrical Contractors, Inc. v. Dustin Construction, Inc. the Maryland Court of Special Appeals reaffirmed the validity of a pay when paid clause. In this case a subcontractor sought payment for several change orders which were denied by the owner. The court held that the prime contractor had met all its obligations when it submitted the change order requests to the owner. The court suggested that the subcontractor’s remedies were against the owner, but gave no information about how these remedies could be exercised. The court indicating it was applying Virginia law, but cited Maryland cases in the decision and harmonized Virginia and Maryland law. Missing from the decision was any indication whether a prime contractor would be required to aggressively pursue payment on behalf of a sub or whether any standard of good faith would be applied to the prime contractor’s conduct. The Young case also did not indicate whether the same standard would be applied if payment was sought from a bond. 

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