Problems Can Arise When Using One Contract in Multiple StatesOn April 16, 2010 By Scott Wolfe Jr
Bowie & Jenson’s Construction Law Forum blog just posted about a case out of the U.S. Fourth Circuit that demonstrates problems that may arise when a contractor uses one form contract in two different states. In the 4th Circuit case discussed, Universal Concrete Products v Turner Construction Company, Maryland and Virginia were the bordering states involved, and the legal issue related to a “pay when paid” provision.
In Virginia, “pay when paid” provisions conditions any payment to a subcontractor on the general contractor receiving payment from the owner. If the general contractor never receives payment, the general contractor never needs to pay the subcontractor.
In Maryland, however, the “pay when paid” provision is not so strong. Maryland distinguishes “pay when paid” clauses from “pay if paid” clauses, considering the first type of provision one requiring payment to the subcontractor within a “reasonable time” after work is concluded, and the second type of provision requiring payment only if and after payment is received from the owner.
The subtle difference in the law was a big difference to the general contractor, who was likely using the same contract in both Maryland and Virginia.
While we don’t practice in Maryland and Virginia, the problem here isn’t isolated to those two states. This problem can arise between any two bordering states.
Our clients in Washington and Oregon frequently work in each other’s state. Our clients in Louisiana frequently work in Mississippi or Texas. While “business” between the two states may feel seamless to the business owners, the laws can be drastically different.