Low Cost Mediation

Do you have a construction dispute but do not want to pay for an attorney? Find out more.

Subcontractor Wins In Important Payment Related Court Ruling!

In a recent victory for California subcontractors, the Appellate Court in Crosno v. Travelers clarified the limitations of “pay-when-paid” clauses in public works projects involving payment bonds.

Crosno involved a “pay-when-paid” provision in a contract between a general contractor and subcontractor. The clause stated that the general contractor would pay the subcontractor within a reasonable time of receiving payments from the public entity, but that this reasonable time “in no event shall be less than the time Contractor and Subcontractor require to pursue to conclusion their legal remedies against Owner or other responsible party to obtain payment . . . .” The Court held that this clause did not prevent the subcontractor from recovering under a payment bond executed by the general contractor, even though the general contractor had not been paid by the public entity.

Subcontractor Wins Court Ruling!

Prior to Crosno, “pay-if-paid” clauses in contracts between general contractors and subcontractors were unenforceable as against public policy. However, pay-when-paid” clauses were allowed, so long as they allowed the subcontractor a right to be paid within a reasonable time. The Court in Crosno pointed out that the “pay-when-paid” clause at issue did not actually provide for payment within a reasonable time because it postponed payment until an undefined point in time when the general Contractor’s litigation with the public entity concluded.

Pay-When-Paid Clause

The ruling in Crosno clarifies that a general contractor cannot simply create an expansive definition of the phrase “reasonable time” in order to avoid the fact that a subcontractor is entitled to be paid under a performance bond within an objectively reasonable time. Although Crosno is currently limited to the enforceability of “pay-when-paid” clauses in the context of litigation between subcontractors and the surety for a public works payment bond, the reasoning can arguably be expanded and applied to render a clause containing similar language as unenforceable in litigation between a general contractor and subcontractor.

Resources for Construction Contractors

Construction Organizations

San Luis Obispo County Builders Exchange

American Bar Association

Santa Barbara Contractors Association

Remodeler’s & Custom Builders Council of Southern California

Society of American Military Engineers (SAME)

Women in Construction Operations (WiOPS)

Home Builders Association of the Central Coast

Los Angeles County Bar Association

San Luis Obispo County Bar Association

Get In Touch

Please contact us below and let’s talk about how we can be of best help for you and your situation.

Find Out More

Call us or send us a message for more information on our “Low Cost Mediation” services

CALL US AT

562-594-3911

Apply For The Paralegal job opening

We accept resumes through this application form only. Upload your resume and cover letter in pdf, doc or docx format. Maximum 2 files at 1MB per document.