Joint Check Agreements: How They Protect You

"Pay When Paid" Clauses

These agreements are a tradition of the industry and are not governed by statute. As such, there is no inherent protection against poorly worded agreements that come back and bite those they aim to protect. The rules of how the agreement operates are contained within the body of the contract, so you want to read it carefully and make sure the joint check agreement doesn't have a built-in "pay when paid" clause that cuts against you.

In some situations, this clause is worded where the subcontractor in our example above is only obligated to pay if they receive payment from the general contractor, so if they aren't paid, they have no obligation to pay their suppliers. This is a problem if you've already performed the work as, with this clause, until they are paid, they have no requirement to pay you.

Clauses worked to pay when paid means that the subcontractor is obligated to pay suppliers once payment is received. So again, if payment from the general contractor is delayed, then payment to suppliers is delayed. However, this clause provides a timing mechanism on when payment is owed and, once the first payment is made, it starts the clock on when the rest of the payments are made.

An Agreement That Protects Your Right to Be Paid

These seem like basically the same thing, you get paid when the subcontractor gets paid, but the difference between if and when, while subtle, can matter. With the first version, the pay if paid clause, both parties share the risk when the owner fails to pay. If the first party doesn't pay, the supplier is unlikely to be able to collect from the subcontractor.

With the second version, the pay when paid, since this is considered merely a timing mechanism, the risk is not shared and, regardless of whether the subcontractor has been paid, the supplier can, after a reasonable time sue for payment. This is a subtle difference, but it's the kind of thing a good construction attorney will be on the lookout for.