A Pay-When-Paid clause is a contractual provision that delays payment to subcontractors until the general contractor receives payment from the Client. This clause is common in construction contracts to manage cash flow risks.
Impact on Contractors and Subcontractors
For general contractors, Pay-When-Paid clauses reduce financial risk by ensuring they only pay subcontractors when they have received funds. However, for subcontractors, it creates uncertainty and potential cash flow issues.
Legal Considerations
In many jurisdictions, Pay-When-Paid clauses must be carefully drafted to be enforceable. Some courts may interpret them as “pay-if-paid” clauses, which could shift the risk entirely onto subcontractors.
Related Terms: Pay-If-Paid Clause, Retainage, Progress Payments, Lien Rights