Contingent Payment Clauses in Construction Contracting

1. Overview of Contingent Payment Clauses
1. Historical Treatment
2. Contractor Interpretation
3. Subcontractor Rebuttal
1. Inequitable Bargaining Power
2. No Assumption of Risk of Owner Insolvency
3. Violation of Mechanic’s Lien Rights
4. Avoiding Forfeiture
2. Condition Precedent or Reasonable Delay?
1. Condition Precedent
2. Jurisdictional Treatment
3. Statutory Treatment
4. Reasonable Delay
1. Dyer Case
2. Texas Case Law Treatment
1. Covenant to Pay
2. Condition Precedent
5. So what’s a Contractor to do?
3. Prevention Doctrine
4. Conclusion

The status of contingent payment clauses in the state of Texas, as well as most other states, is still in flux. Although there is a distinct possibility that a bill may be filed in this session of the Texas Legislature to limit or prohibit the use of such clauses, similar attempts in past legislative sessions have been unsuccessful. This paper will outline the history and status of contingent payment clauses and how the prevention doctrine may be used by subcontractors to defend against non-payment in some situations.

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