Contract Clauses That Can Kill Your Project: Michigan-Specific Pitfalls to Avoid in 2026

Michigan construction contracts can contain troublesome clauses that can destroy your profit, trap you in bad projects, and leave you holding the bag when owners don’t pay. Five specific clauses can kill more contractor projects than anything else: pay-if-paid provisions, no-damages-for-delay clauses, broad indemnification, inadequate change order procedures, and missing suspension-of-work rights. Understanding these clauses before you sign can save your business.

Example: You just signed a $350,000 subcontract for a commercial build in Oakland County. The owner stops paying after month two. You walk off the job to protect your cash flow. Next thing you know, you’re being sued for breach of contract—and the pay-if-paid clause may mean that you can’t collect a dime until the general contractor gets paid by the bankrupt owner.

Key Takeaways

• Pay-if-paid clauses are enforceable in Michigan—you may not get paid if the owner doesn’t pay the GC, even if you did great work.
• No-damages-for-delay provisions are valid unless the delay was unforeseeable, caused by bad faith, or involved active interference
• Michigan law prohibits indemnifying someone for their sole negligence on construction projects (MCL 691.991), but broader indemnity still exists
• Contracts without written change order requirements expose you to disputes over extra work and unpaid change orders
• Missing suspension-of-work clauses mean walking off a non-paying job can make YOU the breaching party
• Metro Detroit projects across Wayne, Oakland, Macomb, and Washtenaw Counties see these contract disputes frequently

Scenario: The $180,000 Lesson

Mike runs an HVAC company in Southfield, Michigan. He landed a big subcontract for a medical office building in Troy. The contract looked standard—40 pages of dense language he’d seen before. He signed it.

Four months in, the owner stopped paying the general contractor. The GC stopped paying Mike. Mike had $180,000 outstanding—enough to cover his materials, labor, and make payroll for six weeks.

Mike walked off the job. He figured he’d file a construction lien and collect. But when his attorney reviewed the contract, they found three troublesome clauses:

1. Pay-if-paid provision: Mike only gets paid “if and when” the GC receives payment from the owner
2. No-damages-for-delay: Mike can’t claim damages for project delays, even owner-caused ones
3. No suspension-of-work right: The contract gave Mike no right to stop work for non-payment

The result? Mike was found liable for abandoning the project. The owner had gone bankrupt, so the GC never got paid—which meant under the pay-if-paid clause, Mike had no ability to collect payment either. He lost $180,000 and faced a counterclaim for the cost of hiring replacement contractors.

Mike’s mistake wasn’t the work he did. It was the contract he signed.

Clause #1: Pay-If-Paid Provisions

Short answer: Michigan courts enforce pay-if-paid clauses that clearly make the general contractor’s receipt of payment from the owner a “condition precedent” to paying subcontractors. If the owner doesn’t pay the GC—even if the owner goes bankrupt—the subcontractor may get nothing.

How This Clause Works

A pay-if-paid clause can shift all payment risk from the general contractor to you. The contract language typically reads something like:

“Contractor shall pay Subcontractor only if and when Contractor receives payment from Owner for Subcontractor’s work. Receipt of payment by Contractor is a condition precedent to Contractor’s obligation to pay Subcontractor.”

This isn’t just a timing delay—it’s a complete condition. If the owner doesn’t pay (bankruptcy, cash flow problems, disputes), you don’t get paid.

Michigan’s Legal Standard

The Michigan Supreme Court established the rule in Berkel & Co. Contractors v. Christman Co., 210 Mich. App. 416 (1995). For a pay-if-paid clause to work in Michigan, it must:

• Use clear, unambiguous language
• Explicitly state that payment is a “condition precedent”
• Not just suggest payment will be delayed for a “reasonable time”

Michigan courts will enforce these clauses as written. The court in Berkel specifically rejected the argument that the clause merely delayed payment to a “reasonable time” because the contract contained no such limiting language.

Recent Limitation

One important exception: In Macomb Mechanical, Inc. v. LaSalle Group, Inc. (unpublished, 2015), a Michigan Court of Appeals held that pay-if-paid clauses only apply to work covered by the original subcontract. Extra work performed under unsigned change orders might not fall under the pay-if-paid provision.

What This Means for You

Best practice: Before signing any subcontract in Wayne, Oakland, Macomb, or Washtenaw Counties (or anywhere in Michigan), search for these phrases:

• “condition precedent”
• “only if Contractor receives payment”
• “if and when payment is received”
• “payment contingent upon”

If you see these terms, you’re looking at a pay-if-paid clause.

Common mistake: Contractors assume they’ll “just file a lien” if they don’t get paid. But a pay-if-paid clause can limit your lien rights to whatever the owner still owes the GC—which might be zero.

Clause #2: No-Damages-For-Delay Provisions

Short answer: No-damages-for-delay clauses are enforceable in Michigan, preventing contractors from claiming damages when project delays—even owner-caused delays—impact your schedule and budget. However, four exceptions can void these clauses: unforeseeable delays, abandonment of contract, bad faith, or active interference by the other party.

The Basic Clause

A typical no-damages-for-delay provision reads:

“Contractor’s sole remedy for any delay shall be an extension of time to complete the Work. Contractor waives any claim for delay damages, including but not limited to extended overhead, labor inefficiency, and lost productivity.”

Translation: The owner can delay your work for months, costing you tens of thousands in extended overhead and lost opportunities—and you have zero recourse except more time to finish.

When These Clauses Get Voided

Michigan courts recognize four exceptions where no-damages-for-delay clauses won’t protect owners:

• Delays not contemplated by the parties at contract signing
• Abandonment of the contract by the delaying party
• Bad faith on the part of the contracting authority
• Active interference by the other contracting party

Example

A mechanical contractor in Dearborn (Wayne County) was delayed six months when the owner failed to obtain permits and utilities connections. The contract had a no-damages clause. So the court will likely find that the owner’s failure was “active interference”—they affirmatively prevented the contractor from working. The clause won’t apply, and the contractor will recover $140,000 in extended overhead.

What This Means for You

Best practice: You can’t always strike these clauses, especially on public projects. But you can protect yourself:

• Document everything: Every delay, every communication, every impact
• Send delay notices in writing: Follow contract notice requirements
• Identify the cause: Was it truly unforeseeable? Did it involve bad faith?
• Calculate actual costs: Track daily overhead, labor inefficiency, lost opportunities

If the delay falls under one of the four exceptions, you may have a claim despite the clause.

Common mistake: Accepting verbal time extensions without documenting the cost impact. Always submit a change order for time AND money when delays occur.

Clause #3: Indemnification Provisions

Short answer: Michigan law prohibits contractors from being forced to indemnify others for the other party’s sole negligence (MCL 691.991), but broader “intermediate form” indemnification that includes joint negligence remains enforceable. These clauses can make you liable for accidents and claims you didn’t cause, potentially exceeding your insurance coverage.

What Michigan Law Says

MCL 691.991 states that any provision requiring a contractor to indemnify another party for damages arising out of bodily injury to persons or damage to property “caused by or resulting from the sole negligence” of that other party is against public policy and is “void and unenforceable” in Michigan construction contracts.

BUT —and this is critical— the law doesn’t prohibit intermediate indemnification. You can still be required to indemnify an owner for claims where you’re only 10% at fault and they’re 90% at fault.

Here’s an example of such a “intermediate indemnification” clause:

“Contractor shall indemnify Owner for all claims arising from Contractor’s work, except those caused by Owner’s sole negligence.”

Here’s a better clause for contractors:

“Contractor shall indemnify Owner only for claims arising from Contractor’s own negligence, errors, or omissions.”

The Insurance Problem

Commercial general liability (CGL) policies may exclude coverage for contractual liability beyond what you’d face under common law. If your construction contract requires broad or intermediate indemnity, you might be self-insuring claims without realizing it.

What This Means for You

Best practice:

• Read the indemnity clause carefully: Look for phrases like “arising out of,” “relating to,” or “in connection with” Contractor’s work—these are broad triggers
• Negotiate for proportional liability: Try to add: “but only to the extent caused by Contractor’s negligence”
• Involve your insurance agent: Have them review indemnity requirements before you sign
• Request additional insured status: If you’re indemnifying the owner, they should be listed as additional insureds on your policy

Common mistake: Assuming your insurance “covers everything.” Policies may specifically exclude broad contractual indemnity, leaving your company potentially liable.

Clause #4: Change Order Procedures

Short answer: Contracts requiring written change orders before performing extra work are enforced in Michigan. Verbal approvals don’t satisfy these requirements, and emails, and text messages may not either. If you perform changed work without proper written authorization, you may work for free, even if the owner requested it.

Why Change Orders Matter

Construction projects in metro Detroit rarely go exactly as planned. Conditions change. Owners request upgrades. Design errors emerge. The question isn’t whether you’ll have change orders. It’s whether you’ll get paid for them.

A well-drafted change order clause should specify:

• Who has authority to approve changes
• How changes must be documented
• Timeline for submitting change order requests
• Pricing methodology (time and materials, lump sum, unit prices)
• Impact on project schedule

The Written Requirement

Many contracts include anti-waiver provisions like:

“No change to this Contract shall be valid unless in a written change order signed by Owner’s authorized representative. Contractor’s acceptance of oral directives or unsigned change orders constitutes a waiver of any claim for additional compensation.”

This language is enforceable. Contractors who perform extra work without complying with written change order requirements likely will be told that they can’t recover payment.

The Exception: Waiver by Conduct

Some Michigan courts have found that owners can waive written change order requirements through their conduct—for example, by repeatedly accepting and paying for verbal change orders throughout the project. But this is risky to rely on.

What This Means for You

Best practice:

1. Stop work when changes are requested: Don’t perform any changed work until you have written authorization
2. Submit change order requests immediately: Document the change, your price, and schedule impact within 24-48 hours
3. Follow the contract procedure exactly: If it requires a specific form or signature, get it
4. Track changed work separately: Use different job codes, time sheets, and invoices for changed work
5. Send confirmation emails: Even if you get verbal approval, confirm it in writing

Common mistake: Performing extra work to “keep the project moving” and assuming you’ll “work it out later.” That almost always ends badly for the contractor.

Clause #5: Suspension of Work Rights

Short answer: Michigan construction contracts that don’t include explicit suspension-of-work rights can trap contractors in non-paying projects. Walking off a job without contractual authority to suspend work, even when you’re not being paid, can possibly constitute “abandonment,” making you the breaching party and exposing you to damages claims.

The Problem

When payments stop coming, contractors face a difficult choice:

• Keep working and “hope” to get payment at some point
• Walk off and get sued for abandonment

Without a suspension-of-work clause, you have no good option.

What a Good Suspension Clause Looks Like

“If Contractor does not receive payment of undisputed amounts within ten (10) days of the due date, Contractor may, upon seven (7) days’ written notice to Owner, suspend performance of Work until such amounts are paid. Contractor shall not be liable for any delays or damages arising from such suspension, and the Contract Time shall be extended accordingly.”

This clause gives you:

• The right to stop work for non-payment
• A procedure to follow (notice requirement)
• Protection from liability for the work stoppage
• Time extension for the delay

What This Means for You

Best practice:

1. Add suspension language to your contracts: Make it a standard provision in every agreement
2. Follow the notice procedure exactly: If your contract has a suspension clause, comply with all notice requirements
3. Don’t walk off without authority: Even if you’re not getting paid, follow the suspension procedure
4. Secure the jobsite: When you suspend work, remove equipment safely and leave the site in a secure condition
5. Protect your lien rights: File preliminary notices and liens while you’re suspended, don’t wait

Common mistake: Thinking you have a “common law right” to stop work for non-payment. In construction, your contract primarily controls your rights, not general principles.

When to Call a Michigan Construction Lawyer

Contact an experienced construction attorney BEFORE signing a contract if you see:

1. Any pay-if-paid clause on a project where the owner’s or GC’s finances are questionable
2. Broad indemnification language that goes beyond your negligence
3. No change order procedure or vague procedures that don’t specify who can approve changes
4. No suspension-of-work rights and payment terms longer than 30 days
5. Out-of-state venue or arbitration clauses requiring you to litigate elsewhere
6. Liquidated damages that seem disproportionate to actual likely damages
7. Unlimited consequential damages provisions making you liable for lost profits and business interruption

Call a construction attorney DURING a project if:

1. Payment stops and you’re considering walking off the job
2. Significant changes occur without written change orders
3. The owner demands work beyond the contract scope
4. You receive a notice of a mechanics lien from someone you hired
5. A third party is injured on your project
6. You’re asked to waive claims as a condition of payment
7. The project is significantly delayed and you’re facing liquidated damages

Time matters in construction disputes. The Construction Lien Act has strict deadlines, and taking action early can save your payment rights.

Frequently Asked Questions About Michigan Construction Contract Clauses

Protect Your Business: Two Options

These contract clauses can negatively impact profitable projects and put your business at risk. Don’t sign contracts with “dangerous” provisions without understanding what you’re agreeing to.

Option 1: Take action before you sign

Email or call to schedule a contract review. Bring your proposed contract, and we’ll identify the potential “landmines” in the contract and suggest specific language changes to protect your payment rights, limit your liability, and give you the tools you need to collect what you earn.

Option 2: Get help now if you’re already in trouble

If you’re facing non-payment, considering walking off a job, dealing with unsigned change orders, or being blamed for delays you didn’t cause, time matters. Michigan’s lien deadlines don’t wait, and the longer you wait to act, the fewer options you have.

Szura & Delonis, PLC
29777 Telegraph Road, Suite 2475
Southfield, MI 48034
(248) 716-3600
admin@szuradelonis.com

We represent contractors, subcontractors, suppliers, and construction managers throughout Oakland County, Wayne County, Macomb County, and Washtenaw County. We understand Michigan construction law, we’ve handled numerous payment disputes and contract claims, and we know how to protect contractors’ rights.

This article provides general information about Michigan construction law and does not constitute legal advice. Construction contracts and disputes are fact-specific, and the outcome of any situation depends on the particular circumstances. Always consult with a qualified Michigan construction attorney about your specific contract or dispute.

About the Author

Richard M. Delonis is a Michigan construction, business, and real estate attorney at Szura & Delonis, PLC (Southfield/Metro Detroit). He advises construction managers, general contractors, subcontractors, and property owners on lien rights, collections strategy, contract disputes, and project-risk issues.