The Construction Contract: Payment-for-Stored-Materials Provisions

Whether you are acting as owner, prime contractor or a subcontractor, payment issues associated with stored materials can arise.  For example, certain equipment or materials (i.e., HVAC equipment, custom counter-tops and commodities such as copper) may require long-lead procurement, or may offer significant cost savings to purchase early in the construction process.  Once acquired, however, these materials must be stored.

Who pays to store the material or equipment after procurement?  This question is one that typically requires an examination of the operative contracts and the contract documents as a whole.  Failure to adequately analyze the bid documents in addition to the contract documents can result in an unsuspecting subcontractor ordering materials or equipment under the mistaken belief it will receive payment for storage costs.  These contractors or  subcontractors may ultimately pay the entire cost of storage without reimbursement.  These types of errors can eliminate the cost-savings obtained by acquiring materials early, disrupt the construction process, and turn a profitable job in to a losing proposition.

In addition to being at risk for not getting paid for stored material costs, failure to obtain the right type(s) of insurance, or insurance in adequate amounts, can put contractors and subcontractors at further risk in the event of fire, theft or other perils that may arise on construction projects.

If you are confronted with stored material payment issues whether as an owner, prime contractor or subcontractor, please contact the Milo D. Miller Law Group, P.C. at 720-306-7733, to aid you through the payment and risk mitigation processes.

Pay-if-paid vs. Pay-when-paid in Construction Contracts

Frequently, subcontractors in the commercial, residential, industrial and government contracting arenas are  confronted with pay-if-paid clauses or pay-when-paid clauses in construction contracts.   Understanding the distinctions between pay-if-paid and pay-when-paid clauses and how the two contract clauses are typically enforced can mean the difference between getting paid within a reasonable time or forfeiting your rights to payment entirely.

In general, an owner’s failure to pay a general contractor does not relieve the general contractor from paying its subcontractor.  However, a general contractor can shift the risk of non-payment by the owner to its subcontractor.  This type of clause is often referred to as a pay-if-paid clause.  A pay-if-paid clause must be clear, express and free from ambiguity to relieve the general contractor of its obligation to pay its subcontractors for their work.

If the contract language the general contractor relies on to deny payment to its subcontractor is not express or is ambiguous, the clause may be treated as a pay-when-paid clause.  A pay-when-paid clause does not relieve the general contractor of its obligation to pay its subcontractors.  Rather, a pay-when-paid clause will most likely require the general contractor to pay its subcontractor within a reasonable amount of time regardless of whether the general contractor ever receives payment from the owner.

A well-drafted subcontract, including payment provisions, can mean the difference between getting paid and litigation on a construction project.

Milo D. Miller Law Group, P.C. has significant experience drafting, arbitrating and litigating construction matter involving pay-if-paid clauses. For more information, contact Milo Miller of Milo D. Miller Law Group, P.C., at 720-306-7733 or [email protected]

What is an “Act of God”?


September Rain Storm Floods Stapleton’s Westerly Creek

In light of the recent flooding in Colorado some builders have taken the position that water damage to homes is an “act of god” and deny they are responsible for making repairs to the home.  The builders apparently rely on the theory that flooding is a natural event that cannot be controlled and the builder is not responsible for damage that water causes to homes.

Black’s law dictionary defines as “act of god” as follows:

“A natural event that causes loss. No human force is used and the event cannot be controlled.  An overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”

When homeowners are faced with circumstances where a builder or insurance company denies responsibility for water damage, it is essential to determine what actually caused the damage.  It may be that the homeowner is entitled to relief from the builder or insurance carrier because the damage may not be due solely to uncontrollable acts of nature.

Often, builders fail to establish proper grading and drainage to allow water to flow away from the structure of the home.  This can result  in water intrusion into the home  entering window wells, through basement walls and into crawl spaces.  If the builder fails to establish proper grading/drainage and the cause of the water intrusion is the improper grading and drainage, the builder’s reliance of the “act of god” defense may be inappropriate.  This is because the water intrusion and resulting damage may be caused by the builder’s failure to use proper construction techniques and not a natural, uncontrollable “act of God.”

Similarly, some insurance companies may deny claims under the theory that water damage was caused by a flood and, in the absence of flood insurance,  that insurance carrier does not have a duty to provide the property owner with benefits to correct the resulting water damage.  Here again, the analysis needs to focus on the cause of the water damage.  The cause of the water damage may not be the natural flood event.  Rather, the cause of the water damage may be the result of a failure to adequately design or construct the property in such a manner that would have prevented the water from entering the home or other structures.

For more information, contact Milo Miller of the Milo D. Miller Law Group, P.C., at 720-306-7733, or [email protected]