A Warning to Subcontractors: Read Your Contracts Carefully

A recent Connecticut Court of Appeals case is a warning to all subcontractors to review their contract provisions carefully.  In Suntech of Connecticut, Inc. v. Lawrence Brunoli,[i] a subcontractor (Suntech) contracted to build a large curtain wall that was a substantial feature in an airport terminal.  The structural and architectural plans did not match, and all the parties failed to notice the discrepancy during the bidding phase or prior to signing the agreement.

During construction, Suntech submitted several cost revisions to the general contractor (Brunoli).  Although Brunoli accepted the changes, the owner did not.  To keep Suntech working, Brunoli, not the owner, then authorized payment.  However, Brunoli later claimed that agreement was reached under duress and refused to pay.  Suntech’s signed subcontract gave the project owner’s engineer “discretion to determine … whether to accept or reject performance … what invoices were paid to both the general contractor and subcontractors, and to what extent they were paid.”  In essence, the subcontract gave the owner the last word for approving invoices.

According to the Court, the subcontract provision clearly and unambiguously waived any claim by Suntech against Brunoli for payment issues arising from the owner.  Thus, Brunoli had no obligation to pay Suntech unless it received said payment from the owner first.  The “pay-if-paid” provision, a common construction contract element, protected Brunoli from both damages and delays caused by the owner failing to accept responsibility for Suntech’s payment.

While this case will no doubt be followed in only narrow circumstances, it does show a financially precarious situation that a subcontractor can find itself in if it does not carefully review its contract.

Comment:  We have written extensively on the “pay if paid” and “pay when paid” distinctions. Pay If Paid Much Ado About Nothing; Pay If Paid/Pay When Paid Is Revisited; Recent Seventh Circuit Case May Be A Prognosticator Of How Washington Supreme Court Will Deal With Pay If Paid Provisions; Pay When Paid Provision In Subcontract Was Vitiated By A Provision Of the Prime Contract Incorporated By Reference; Pay When Paid vs Pay If Paid Clauses Mystery vs Myth.  For some reason in this case, the Court did not hold the general contractor’s feet to the fire on its promise to the subcontractor.  This holding is narrow and should not be extended to the general proposition that a general contractor’s payment promises will not be enforced in light of the “pay if paid clause” in the subcontract.  On the contrary, many courts narrowly construe the “pay if paid” provision and look for any excuse to invalidate what the courts construe as a harsh general contractor favorable contract provision.

[i] Suntech of Connecticut, Inc. v. Lawrence Brunoli, Inc., 143 Conn. App. 581, 72 A.3d 1113 (2013).

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