“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.