Payment Terms in the Construction Contract

In addition to establishing how much a contractor is to be paid the parties must also decide when and under what conditions payment is to be made, how much retainage should be withheld and when it should be released. The construction contract likely also will address what conditions must be satisfied before payment is made. These conditions can include things such as the approval of the work by an architect or the submission of lien releases. Another condition to payment, in a contract between a contractor and subcontractor, is a “pay when paid” or “pay if paid” provision that makes payment to the subcontractor by the contractor conditional upon payment by the owner to the contractor. Pursuant to Alabama construction law, these provisions will not be construed to allow for non-payment by a contractor unless they are written so as to specifically create a condition precedent to payment by the general contractor. Federal Ins. Co. v. I. Kruger, Inc., 829 So. 2d 732 (Ala. 2002); but see, James E. Watts and Sons Contractors v. Nabors, 484 So.2d 373 (Ala. 1985) (finding clause enforceable under Alabama law if the clause can be said to be a dependant covenant).