Pay-When-Paid

What is pay-when-paid?

A pay-when-paid clause says the prime contractor will pay a subcontractor after (or within a period after) the prime receives payment from the owner for that work.

Subs read it as "I might not get paid until the owner pays you." GCs read it as cash-flow protection. Courts read it differently depending on state or province law.

Pay-when-paid vs pay-if-paid

Some jurisdictions treat pay-if-paid as unenforceable against subs. Wording and local law both matter.

Interaction with prompt payment and liens

Statutory prompt payment rules on some projects limit how long a GC can withhold sub payment after receiving owner funds. Lien rights may still exist even when a pay-when-paid clause appears in the sub contract.

Do not assume the clause replaces lien deadlines or statutory timelines.

Negotiating pay-when-paid

Subs can push for:

• Maximum days after prime receipt regardless of owner dispute
• Partial payment for undisputed amounts
• Interest on late payment
• Right to suspend work for non-payment per payment terms

GCs can push for:

• Clear invoice format matching owner pay apps
• Joint waiver flow on progress payments

On the job

Read subcontract payment sections before pricing. Pay-when-paid is a cost of capital.

Invoice in sync with prime pay apps. Misaligned billing delays everyone.

Calendar your lien or builders lien deadlines independently.

Note

This is general info, not legal advice. Pay-when-paid enforceability varies by jurisdiction. Consult a construction attorney for contract-specific guidance.