The New Jersey Appellate Division recently upheld the enforceability of “pay-if-paid” provisions in construction contracts, “as long as the contract on its face contains clear and unequivocal language that unambiguously sets forth the parties’ intention and agreement that owner payment is a condition precedent to the general contractor’s obligation to pay the subcontractor,” in JPC Merger Sub v. Tricon Enterprises, 474 N.J. Super. 145, 163 (App. Div. 2022). In JPC Merger, the three-judge appellate panel agreed that “such a provision is neither unfair, unconscionable, nor against public policy.”

A pay-if-paid clause in a construction contract provides that a subcontractor will be paid by the general contractor only if the owner pays the general contractor for the subcontractor’s work. Payment by the owner is an express condition precedent to the general contractor’s duty to pay the subcontractor. In practice, such a clause seeks to shift the risk of the owner’s non-payment from the general contractor to the subcontractor.

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