Fourth Circuit affirms enforceability of “pay-when-paid” clause

pay-when-paidIn its February 19 ruling in Universal Concrete Products Corp. v. Turner Const. Co., the Fourth Circuit once again confirmed the well-established Virginia rule that “pay-when-paid” clauses are enforceable in construction agreements in the absence of clear contractual ambiguity. In Universal Concrete, the Subcontractor unsuccessfully argued to the District Court on summary judgment that an ambiguity existed regarding payment by virtue of language in the AIA contract between the Owner and Turner. The District Court disagreed and the Fourth Circuit affirmed. The Fourth Court found that Turner had no obligation to pay its Subcontractor where the contract had made payment by the Owner an unambiguous condition precedent. The Court further found that clauses in the Owner/Turner contract actually supported rather than defeated this payment timing. In so ruling, the Court reiterated the Virginia policy preference for “freedom to contract” over any paternalistic preference for the perceived weaker contracting party.

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