Paid when Paid contract

Gerry T

So is a "paid when paid" contract legal in ROI. Say a builder employers a electrical contractor who employs a specialist contractor. None are nominated, all tendered work. In that case can the electrical contractor say to the specialist contractor that as the builder hasn't paid him (elect contractor) that he's not paying out. Or should the specialist contractor get paid irrespective of the electrical contractor getting paid.

Bluegrass1

Gerry T wrote: »

So is a "paid when paid" contract legal in ROI. Say a builder employers a electrical contractor who employs a specialist contractor. None are nominated, all tendered work. In that case can the electrical contractor say to the specialist contractor that as the builder hasn't paid him (elect contractor) that he's not paying out. Or should the specialist contractor get paid irrespective of the electrical contractor getting paid.

Did the did specialist and the elect contractor agree that it was a "paid when paid" contract at the outset?

Gerry T

Bluegrass1 wrote: »

Did the did specialist and the elect contractor agree that it was a "paid when paid" contract at the outset?

This is a hypothetical example, but for this lets say it was agreed by both parties that it would be "paid when paid", but is it enforceable if both parties agreed to this. i.e. does that go against some fundamental contract law or construction law. I am no legal expert but would have thought that if a person entered into a contract that went against contract law that it could not be enforced ? but I am open for correction (i'm sure I will be)

Bluegrass1

So you are saying the specialist agrees that he wont be paid until the elec contractor is paid and then wants to sue for his money before the elec contractor is paid?

Gerry T

I know, sounds a little stupid, but my understanding is in the UK a "paid when paid" clause in a contract is illegal and can't be enforced. So if a contractor tells a supplier he's not paying because he hasn't been paid then the supplier can take a case. This I think is relatively new (last 5 or 10 yrs) legislation. But I doubt the same provision exists in IRL. So now to more background for posting, without getting into specifics a builder in Ireland employed a supplier in the UK for goods and labour (specialist contractor). The development vehicle went into liquidation and final retention payments have not been released. The supplier believes that he should get paid because his contract is with the builder. The builder is saying "well when and if the retentions due are released then we all get our money". The contract would have followed the RIAI (royal institute of architects of Ireland) and I don't think there is reference to paid when paid.
Just to clarify I am neither the builder, developer, UK supplier. Its a "story" I'm aware of and I'm not seeking advise. But thought it an interesting situation and curious what people think and their opinions on this.

Bluegrass1

Gerry T wrote: »

I know, sounds a little stupid, but my understanding is in the UK a "paid when paid" clause in a contract is illegal and can't be enforced. So if a contractor tells a supplier he's not paying because he hasn't been paid then the supplier can take a case. This I think is relatively new (last 5 or 10 yrs) legislation. But I doubt the same provision exists in IRL. So now to more background for posting, without getting into specifics a builder in Ireland employed a supplier in the UK for goods and labour (specialist contractor). The development vehicle went into liquidation and final retention payments have not been released. The supplier believes that he should get paid because his contract is with the builder. The builder is saying "well when and if the retentions due are released then we all get our money". The contract would have followed the RIAI (royal institute of architects of Ireland) and I don't think there is reference to paid when paid.
Just to clarify I am neither the builder, developer, UK supplier. Its a "story" I'm aware of and I'm not seeking advise. But thought it an interesting situation and curious what people think and their opinions on this.

You are not talking about a "paid when paid" clause in a contract. You are talking about an attempt to introduce it after the contract has been entered into.

Gerry T

Bluegrass1 wrote: »

You are not talking about a "paid when paid" clause in a contract. You are talking about an attempt to introduce it after the contract has been entered into.

Fair Enough, I suppose the reality of the situation is suppliers balance the decision between "going after" the builder and getting his money, but at what cost. The legal cost and the future business cost. Plus it may not be so cut and dry in a court room. Could the builder state his case for not paying, hasn't got the money etc....
Or is it very simple, if the supplier goes after the money he will get it.

Honestly I'm not looking for advise, I would go to a professional if that were the case.

Bluegrass1

Gerry T wrote: »

Fair Enough, I suppose the reality of the situation is suppliers balance the decision between "going after" the builder and getting his money, but at what cost. The legal cost and the future business cost. Plus it may not be so cut and dry in a court room. Could the builder state his case for not paying, hasn't got the money etc....
Or is it very simple, if the supplier goes after the money he will get it.

Honestly I'm not looking for advise, I would go to a professional if that were the case.

Not having the money to pay is not a defence in a debt case.

Gerry T

So simply put, unless the builder can demonstrate that there is a provision for "paid when paid" within the contract, going on about not having the money doesn't matter. Thanks for the posts Bluegrass1.

Pat Mustard

Gerry T wrote: »

So is a "paid when paid" contract legal in ROI.

Pay when paid clauses are ineffective in the UK except in the case of insolvency by the specified third person from whom payment is supposed to come. Pay when paid clauses are not yet outlawed in Ireland.

In Ireland, legislation has been proposed to alleviate the problem of subcontractors not getting paid. See the Construction Contracts Bill 2010.

The explanatory memorandum of the Bill (scroll to the end of the Bill):

The main purpose of this Bill is to provide for a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due must be given. Otherwise, payments must be made in full and/or the payee may suspend the provision of works and/or services under the construction contract until payment is made in full. This provision is proposed in ease of persons along the chain in the construction sector who may suffer unduly where an entity under a superior contract would find itself withholding payment unilaterally without cause. This would bear unfairly upon the payee or others dependent upon the payee.

Commentary.

Gerry T wrote: »

Say a builder employers a electrical contractor who employs a specialist contractor. None are nominated, all tendered work. In that case can the electrical contractor say to the specialist contractor that as the builder hasn't paid him (elect contractor) that he's not paying out. Or should the specialist contractor get paid irrespective of the electrical contractor getting paid.

You'd really have to look at the contract between the relevant parties.

Gerry T

Thanks Mustard, the attachment from Arthur Cox is interesting. Seems like the detail is in the contract and there is no simple answer, but one plain fact is the UK supplier cannot assume that "paid when paid" is not a legally binding clause, if its in the contract.