Using magic words: understand Pay-If-Paid vs. Pay-When-Paid clauses in construction agreements sponsored by BUSINESS TIP There are countless ways for a construction project to go awry.The first claims that come to mind are those based on delays or defective workmanship, but perhaps even more common are the potential claims that arise when a general contractor does not receive pay- ment from the owner, but remains potentially liable to its subcontrac- tors for work performed. Like most construction disputes, the answer to the question of whether or when a general contractor is liable for payment to its subcontractors starts (and often ends) with the language of the contract. Case study Beal Bank Nevada v. Northshore Center THC, 64 N.E.3d. 201, 407 Ill. Dec. 823 (1st Dist. 2016) is a recent case from the Appellate Court of Illinois (First District) dis- cussing this issue, and providing guidance to understanding pay- ment risks in a construction agree- ment in the context of pay-when- paid vs. pay-if-paid clauses. The facts of the Northshore Center are simple. Northshore Center THC, LLC (“Owner”) bor- rowed funds from BankFirst to develop real estate in Northbrook, Illinois. The Owner entered into an agreement with a General Contractor, FCL Investors, Inc. (“General Contractor”), to per- form certain construction work at the Northbrook site. The General Contractor then entered into a sub- contract with Lake County Grading Company, LLC (“Subcontractor”) to provide excavation work, sewer line installation, and other construction services. The Subcontractor performed its work and issued several invoices to the General Contractor, which the General Contractor submitted to the Owner. The Owner failed to pay the General Contractor, who in turn didn’t pay the Subcontractor. When the parties were unable to resolve their differences, a lawsuit ensued. The main issue between the General Contractor and the Subcontractor concerned By Daniel A. Dorfman, HARRIS • WINICK • HARRIS LLP 28 TileLetter | December 2017