“Paid-when-paid” clauses will remain a constant “armwrestle”when subcontract terms are negotiated at the start of the project, and potential “shared pain” at the end of every troubled project. Through


some compromise and pr


p edicting the next set of legal “tea leaves,” a balance thatworks for everyone can be achieved.


a statutory payment bond. Te Crosno Court held:


Relying on Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882 (Wm. R. Clarke), the trial court found the pay-when-paid provision here unenforceable because it affects or impairs Crosno’s payment bond rights in violation of Civil Code section 8122.


Other states, most recently Virginia,


have taken this to a Legislative level, pro- hibiting “paid-when-paid” clauses.


What Does this Mean Today? AGC is in process of responding toCrosno – rethinking its present “paid-when-paid” clause. How much “delay” in payment is unenforceable “impairment” of the pay- ment bond right? Tat is not yet defined. So, AGC and its Legal Advisory Committee


(LAC) are working hard to respond while keeping some balance to the cash flow dynamics which, except the “doozy” out- lier cases, largely seems to have worked. Your input is welcome. Currently, the thinking has been to create a shorter, definitive, “paid-when-paid” deadline, tied to a subcontractor’s own collection remedy deadlines—the time to record a lien and file a foreclosure suit, to serve a stop payment notice, and the deadline to file suit on a payment bond claim. The concept under discussion is to


allow delay in payment on undisputed sums to cease 60 days after the payment bond remedy is perfected by suit—that is, somewhere between 9 and 11 months after project completion. This concept revision will give prime contractors time to collect or adjust their cash flow when not paid in a timely manner by the owner (or in a dispute) and allow for a balance in keeping with the Civil Code Section


8122 language (as most recently inter- preted in court). Tere is no easy answer to this. “Paid-


when-paid” clauses will remain a constant “arm wrestle” when subcontract terms are negotiated at the start of the project, and potential “shared pain” at the end of every troubled project. Trough some compromise and predicting the next set of legal “tea leaves,” a balance that works for everyone can be achieved. Look for updates from AGC as these


forms get updated. Mark Rice


Mark Rice is a partner with McNeil Silveira Rice & Wiley, San Rafael, CA and an active member of AGC’s LAC and its Subcontract Subcommittee.


CALIFORNIA CONSTRUCTOR MAY-JUNE 2022


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