onstruction payment in the United States

Construction payment in the United States is considered one of the most regulated in the world as most states have legislated and passed laws and regulations about payment timing (Robson, 2011).  By definition, a pay-when-paid clause refers to a timing framework that delays the period in which the subcontractor must be paid by the general contractor (May & Siddiqi, 2006). General Contractors often bares the risk that may arise when the owner has not paid as stated in the contract which is why pay-when-paid” clauses are prevalent in the construction industry. However, the pay-when-paid clauses are misinterpreted, which has led to several court cases (Ryan Contracting Inc. v Michael Brandt, 2017).

In Arkansas, private contractors have freedom and can operate as they deem fit (May & Siddiqi, 2006). However, contractors in public works projects are required to operate within the confines of set rules and regulations in the Prompt Payment Act (PPA 2020). The state requires the owners, general contractors, subcontractors, and suppliers sign a construction contract only when the terms of contract align with the regulation. Courts in Arkansas have held that the pay-when-paid clause is only valid if its framework strictly included a time frame for payment of the subcontractors (FASA, 2020). Analysts have noted that the pay-when-paid clause has been primarily designed to benefit individuals in the higher echelons of the contractual chain to the detriment of downstream contractors. The paper seeks to provide a thorough analysis of Pay-When-Paid clauses in contract agreement in the state of Arkansas and their overall impact.

Aim

To critically evaluate how pay-when-paid clauses are enforced and should be operated and enforced against subcontractors in the construction industry in the state of Arkansas.

Objectives

  • To establish what pay-when-paid clauses are and how they are used in the construction industry around the world.
  • To critically analyse the legal status of pay-when-paid clauses in subcontracts, including how these clauses can be formulated and enforced in the state of Arkansas.
  • To critically review and evaluate the experiences of Sub constructor businesses when using pay-when-paid clauses.
  • To establish the ways in which pay-when-paid clauses should be operated and enforced

Project Alignment with Programme of Study

The pay-when-paid clauses are part of construction legal contracts between contractors and subcontractors. As such, the study is a specific example of construction law, providing the potential to develop additional insight into this area and thus build understanding around the wider field of construction law. I would assess the specific impact of pay-when-paid clauses on the contracts of construction businesses, as well as to gain knowledge and insight from interviewing construction professionals around the legal implications of these clauses and their relevance to construction law.

Justification                                                                                                                                  

Based on the uncertainty and dispute surrounding the use of pay-when-paid clauses in modern construction contracts, it is important to further study the pay-when-paid clause. In general, the legal environment around this clause has long been a grey area, with this clause being of limited value in the process of developing a construction contract and enforcing a contract in the event of any potential default issues (Koprince, 2008, p. 48).

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