Michigan Legislation Could Change How Contractors Get Paid

Contractors and subcontractors in Michigan should keep a close eye on House Bill 4837, introduced in June 2023. If passed, this “prompt payment” legislation would invalidate “pay if paid” clauses in private construction contracts and impose penalties for payments wrongfully withheld—including 12% annual interest on overdue amounts.

Michigan has a prompt payment law for public projects but no such protections for private construction work. That could soon change. The proposed bill reflects growing concern that conditional payment clauses unfairly shift risks of nonpayment on construction projects.

The bill is still pending in committee, but its passage would significantly reshape how construction contracts are written and enforced in Michigan.

Are your contracts prepared for upcoming legal changes? Reach out to the Ann Arbor construction lawyers at Pear Sperling Eggan & Daniels, P.C. to ensure your payment provisions are both fair and compliant.

“Pay if Paid” Clauses in Michigan – Are They Enforceable?

In Michigan’s private construction sector, “pay if paid” clauses are becoming increasingly common. These provisions state that a subcontractor will only be paid after the general contractor receives payment from the project owner. While generally permissible under Michigan law, their enforceability depends heavily on how clearly the clause is written.

In Berkel & Company Contractors v Christman Co, the Michigan Court of Appeals upheld a “pay if paid” clause, emphasizing the importance of language that makes the general contractor’s receipt of payment a clear condition precedent. If that condition is not satisfied, the subcontractor cannot claim breach of contract for nonpayment.

However, limitations exist. A party cannot rely on a condition precedent if it caused or made impossible its fulfillment. In other words, if the delay or nonpayment is unreasonable or due to interference, the clause may not protect the general contractor from liability.

Want to avoid disputes over payment timing in your construction contracts? Make sure your agreement contains clear, enforceable language—and consider a legal review before signing. Contact the Ann Arbor construction lawyers at Pear Sperling Eggan & Daniels, P.C. for guidance.