Contract Drafting Tips to Prevent Payment Disputes in Construction Projects
By Tony M. May, Esq. of the May Brock Law Group – Construction Law Attorneys in Nevada
Construction payment disputes are among the most common sources of litigation in the building industry. Whether you’re an owner, general contractor, subcontractor, Supplier, or design professional, careful contract drafting is one of the most effective ways to prevent misunderstandings, avoid delays, and reduce the risk of legal claims. At MAY BROCK LAW GROUP, we regularly assist clients in the construction industry with proactive contract drafting and negotiation to avoid costly disputes before they arise.
Why Payment Disputes Arise in Construction Projects
Disputes often stem from vague or missing language in key contract provisions. Common triggers include:
- Unclear payment schedules
- Disagreements over change order procedures
- Improper lien waivers or release forms
- Unenforceable “pay-if-paid” or “pay-when-paid” clauses
- Failure to properly document work progress or delays
Below are several practical tips for drafting construction contracts that promote payment clarity and reduce the likelihood of disputes.
1. Use Clear and Enforceable Payment Terms
Specify the payment schedule in unambiguous terms. Include:
- Milestone or monthly billing terms
- Exact due dates for payments
- Interest rates or penalties for late payments
In Nevada, Except as it relates to the public body, the Prompt Payment laws under NRS 624.624–626 apply to both public and private projects and set clear rules for how quickly contractors must pay their subcontractors.
2. Avoid Pay-if-Paid Clauses
“Pay-if-paid” clauses are not generally enforceable within the State of Nevada and can only be enforceable under strict circumstances:
- Ensure payment language does not include a “pay-if-paid” clause
- Allowing this type of clause will virtually assure litigation if there is a non-payment for any reason
3. Avoid Ambiguous Pay-When-Paid Clauses
“Pay-When-paid” clauses can be risky and may be unenforceable in Nevada. In Nevada, courts have historically scrutinized these types of provisions carefully. To protect contractors and subcontractors’ interests:
- Ensure payment language does not unreasonably shift risk downstream
- Clarify whether the clause is a timing mechanism or a condition precedent
4. Establish a Formal Change Order Process
Changes are inevitable in construction. Include a well written change order process, including:
- Who has authority to approve changes
- How and when changes must be documented
- Pricing methods (fixed fee, time and materials, unit price, etc.)
Failure to follow a defined process often results in payment disputes and delays to projects.
5. Use Proper Lien Waiver Language
In Nevada, conditional and unconditional lien waivers must comply with NRS 108.2457. Your contract should:
- Attach approved statutory lien waiver forms
- Clarify when conditional waivers convert to unconditional
- Avoid inadvertently waiving lien rights before payment is received
6. Include Dispute Resolution Provisions
Sometimes, you can prevent a payment dispute from escalating by including:
- A mandatory mediation or arbitration clause
- A venue selection clause (e.g., Clark County, Nevada)
- Attorney’s fees provisions for the prevailing parties
These clauses give parties a roadmap for resolving issues without immediately resorting to litigation.
7. Align Contract Terms with Financial Management Practices
Contractual provisions should work hand-in-hand with your project accounting systems. We often recommend incorporating Construction Financial Management Association (CFMA) best practices, such as:
- Project-specific billing codes
- Timely approval processes for change orders and invoices
- Clear audit trails for payments and cost tracking
Conclusion: Prevention Is Better Than Litigation
Well-drafted construction contracts are your first line of defense against payment disputes. By addressing the key issues up front — especially in high-risk states like Nevada — you can minimize financial exposure, preserve relationships, and keep your projects on track.
At MAY BROCK LAW GROUP, our attorneys help owners, contractors, subcontractors, developers, design professionals, and suppliers draft and negotiate construction agreements tailored to their business needs. If you need assistance reviewing or revising your contracts, contact us at [email protected], or call us at 702-388-0404.
Keywords: construction contract drafting, construction payment disputes, Nevada construction law, lien waivers, pay-if-paid clauses, pay-when-paid clauses, CFMA construction finance, construction change orders, construction lawyer Nevada