On June 16, Texas Gov. Rick Perry signed into law S.B. 324, which addresses contingent payment clauses in construction contracts, often called pay-if-paid clauses. Lawyers practicing construction law, particularly those representing general contractors and subcontractors, need to know about the changes this bill makes in how their clients can structure their business dealings. The bill goes into effect Sept. 1.

Contingent payment clauses are payment provisions in construction contracts that allocate risks of nonpayment among general contractors and subcontractors. Typically, the general or primary contractor will include a provision in its subcontract agreement that makes its obligation to pay the subcontractor conditional upon its receipt of payment from the owner. With such a clause in a subcontract, the intent is that the general or primary contractor does not have to pay the subcontractor until and unless the contractor receives payment from the owner.

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