Increasingly, suppliers are requesting joint check or joint payment agreements from subcontractors and prime contractors. From the suppliers’ viewpoint, they make a lot of sense because they give some assurance that payments will go directly to the supplier, even if only by a joint check. The problem, however, for higher tier subcontractors or prime contractors is that it creates a direct contractual relationship with a supplier where one would not otherwise exist. This then lead to potential liability that would not otherwise exist.
While needs may dictate the use of a joint check or joint payment agreement, higher tier subcontractors / prime contractors will minimally want to incorporate terms that provide reasonable protections, including limitations of liabilities, the incorporation of lower tier contracts, including payment offset rights, and similar risk allocation provisions. One of the biggest risks to avoid is having an obligation to pay the supplier, even if there is not an obligation to pay the lower tiers, and in capping liability. More discussions of these issues to follow.