Definition
A pay-when-paid clause is a contract term stating that a general contractor will pay a subcontractor after the contractor receives payment from the project owner. A stricter version, pay-if-paid, makes the owner's payment a condition, so the subcontractor may never be paid if the owner does not pay.
Also called: Pay when paid, Pay-if-paid, Pay if paid clause, Contingent payment clause
Pay-when-paid clause in practice
Courts often read pay-when-paid as a timing rule: the contractor can wait for the owner's payment, but only for a reasonable time, and must eventually pay even if the owner does not. Pay-if-paid shifts the risk of owner non-payment to the subcontractor.
Enforceability varies widely. Some states ban pay-if-paid clauses entirely, some enforce them only with very clear wording, and prompt payment laws may set maximum waiting periods.
Read these clauses before signing a subcontract. If you accept one, protect yourself with lien rights, short billing cycles, and prompt follow-up on every pay application.
Example
A subcontract says the subcontractor will be paid "within 7 days after Contractor receives payment from Owner". The owner pays the general contractor on May 20, so the subcontractor's invoice is due by May 27.
Frequently Asked Questions
What is the difference between pay-when-paid and pay-if-paid?
Pay-when-paid sets when you will be paid. Pay-if-paid sets whether you will be paid at all, depending on the owner paying the contractor.
Are pay-if-paid clauses legal?
It depends on the state or country. Some prohibit them, others enforce them only if the wording is unmistakable. Check local law or ask a construction attorney.
Related terms
- Lien waiver A lien waiver is a document in which a contractor, subcontractor, or supplier gives up its right to file a mechanics lien on a property for a specific payment.
- Progress invoice A progress invoice bills a portion of a larger project as work is completed, rather than one invoice at the end.
- Payment terms Payment terms are the conditions on an invoice that state when and how the client must pay.
- AIA billing AIA billing is a construction progress billing method that uses the American Institute of Architects forms G702 and G703 to request payment.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.